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Chrysler to Cut Dealer Payments, Perks; Cutting 26,000 Jobs

January 29, 2001

The Chrysler unit of DaimlerChrysler AG plans to cut $600 million in advertising support and showroom subsidy payments to its dealers, according to industry sources.

Chrysler has more than 4,400 dealers.

The arrangement is part of the German-U.S automaker's attempts to curb losses that have cost its U.S. unit about $2 billion in the last two quarters.

In the biggest cutback, Chrysler has suspended the 15-day grace period before dealers must pay for shipped vehicles. It will be replaced by a new plan called "Dealer Market Performance Allowance," which rewards dealers up to $500 per vehicle if they meet sales targets.

The company is expected to cut dealer margins by three percent on vehicle options such as alarm systems and CD players, the report said. DaimlerChrysler will also stop reimbursing dealers for the gasoline used in new vehicles, according to Dow Jones.

Most of the changes will take effect immediately.

"We are hopeful that this becomes a win-win situation for all of us by increasing our revenues at the same time we are decreasing costs," said M. John MacDonald, senior vice president of Sales and Field Service in a press release Jan. 24. "It just makes sense in our current business environment."

Chrysler hopes to save more than $600 million by cutting back on the subsidies it pays dealers for local advertising, prepping new vehicles at the dealerships, new computers and

other work expenses. It also will trim the profit margins dealers make on selling accessories such as moon roofs, chrome wheels and other options.

DCX also announced it is dumping the practice of offering cash bonuses to dealers for selling certain models, regardless of their overall sales. Instead, the automaker will begin paying dealers bonuses for reaching overall monthly sales targets set by the company. "I

understand there's a belt tightening all around and we as dealers will do what we can," said Harold Wells, chairman of the National Automobile Dealers Association (NADA) and a

Chrysler-Jeep-Dodge dealer in North Carolina. "We just have to run better stores to offset what Chrysler has cut out," Wells added.

The plan, negotiated by Chrysler chief executive Dieter Zetsche and members of the dealer council, was even milder than the one the company initially proposed, the magazine said.

As part of Chrysler's ongoing reorganization plan, suppliers have been asked to cut prices, a Toledo, Ohio, plant is to be closed, and thousands of other assembly workers have been on temporary layoffs, according to BusinessWeek.

Chrysler Group on Jan. 29 announced the next major part of its turnaround plan "to regain competitiveness under difficult business circumstances."

Over the course of the next three years, the Chrysler Group will reduce its workforce by approximately 20 percent. The reduction will be approximately the same percentage for both salaried and hourly employees.

This will affect about 26,000 people -- 19,000 hourly and 6,800 salaried (including 1,800 supplemental employees) -- through a combination of retirements, special programs, layoffs and attrition.

It is expected that 75 percent of the overall reduction will be achieved in 2001, according to company officials. This is being done within the framework of existing union contracts.

"Today's actions will help remove the uncertainty many of our employees have been feeling," said Dieter Zetsche, Chrysler Group president and CEO. "Part of this process may be painful for many people. However, to be truly competitive in today's auto industry environment, we need to be a more nimble company, more closely aligned with current and future market conditions.

"Only by adapting our overall cost structure, workforce and production levels to the realities of the marketplace, while maintaining our investments in exciting products, can we establish a sound basis to ensure the long-term health of the Chrysler Group for its numerous stakeholders and be in strong position for future growth," Zetsche said.

"We are taking these actions at this time, in order to accelerate improvement in Chrysler Group's financial performance," said Zetsche.

According to Zetsche, a series of manufacturing actions will be necessary to attain the objectives, including reducing shifts and line speeds, as well as idling

selected plants to adjust production capacity at Chrysler manufacturing operations around the world. Chrysler plans to reduce excess capacity by idling six manufacturing facilities over the next two years.

The company also will adjust component, stamping and power train volumes commensurate with the reductions in assembly capacities. Overall, the workforce reduction proportionately greater in Canada than in the United States due to the higher number of employees in assembly operations whose

products are impacted.

In addition, all facilities have new targets to accelerate quality levels and productivity, so that the company can operate more efficiently and at a much improved cost structure over the mid to long term.

"Especially as we implement these actions, we are fully committed to ensuring what has always been a key strength at Chrysler -- an exciting and innovative range of products," Zetsche said. "These initiatives reinforce that commitment by minimizing our workforce reductions within the product development organization."

Retirement Programs: 28,620 Employees Eligible

"Given that Chrysler Group has a large number of retirement-eligible employees, we believe that a large part of our goal can be reached through voluntary special retirement programs by the end of the first quarter this year," Zetsche said.

Some 23,700 hourly (U.S.: 21,000; Canada: 2,700) and 4,920 salaried (U.S.: 4,600; Canada: 320) employees in the U.S. and Canada are eligible for regular retirement or for one of the special programs. The number of layoffs necessary to meet the workforce reduction goals in the near term will depend on participation rates in these programs. As the company manages its way through this reduction, it will provide retirement planning services to counsel eligible employees through their transition, according to Zetsche.

"Our management team has maintained an open and continuous dialogue with the leadership of the United Auto Workers (UAW) and the Canadian Auto Workers (CAW), as well as with other employee representatives," said Zetsche. "In that process of discussion, solutions were found that are in line with the framework of our current labor contracts."

According to Zetsche, these actions are a crucial part of the company's latest initiative in its turnaround plan, following a material cost reduction program that was put in place at the start of this year.

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