Daimler to Cut Management by 20%

[azasadny]

New CEO's First Big Move Includes Headquarters Shift; Mercedes Will Take Brunt

The Wall Street Journal 01/24/06
by Stephen Power and Neal E. Boudette
(Copyright (c) 2006&044; Dow Jones & Company; Inc.)


DaimlerChrysler AG was set to announce today it is planning job cuts that will trim its management ranks by about 20%, a person familiar with the matter said.

The cuts, due to be unveiled after a meeting of the auto maker's supervisory board in Stuttgart, Germany, are expected to reduce the company's global white-collar head count by 5,000 or more, with its Mercedes division taking the brunt of the reductions, this person said. The time frame was unclear, however, for the elimination of the jobs.

In connection with the cuts, the company also is expected to announce that it is moving its headquarters from Stuttgart to a suburb, Unterturkheim, where Mercedes's main engineering operations are located, according to other people familiar with the company's plans.

The moves are the first major actions by Dieter Zetsche since he became the auto maker's chief executive Jan. 1. Mr. Zetsche, who succeeded longtime CEO Jùrgen Schrempp, also heads the Mercedes division, a post he took last September after leading a turnaround at the auto maker's U.S.-based Chrysler Group.

A key challenge for Mr. Zetsche is restoring profit at the Mercedes division, which in the past has generated more than half of DaimlerChrysler's operating profit. However, in the first nine months of 2005, the Mercedes division posted an operating loss of about €500 million ($607 million), partly owing to quality problems and bloated costs.

The auto maker's Chrysler division has enjoyed stronger results than its U.S. competitors, General Motors Corp. and Ford Motor Co., on the popularity of models like the 300 sedan. But there, too, the company faces pressure, from fierce price competition and higher gasoline prices.

It is unclear whether the supervisory board, which is the German equivalent of a U.S. board of directors, will discuss the future of Smart, an unprofitable maker of colorful small cars that is run by the Mercedes division. Mr. Zetsche said earlier this month that a decision would be made soon on whether to bring the Smart brand to the U.S., one of several key questions hanging over Smart.

Shortly after taking the top post at Mercedes, Mr. Zetsche announced an agreement with its German union to eliminate 8,500 jobs at Mercedes plants across Germany. The reductions are expected to cost DaimlerChrysler about €950 million.

The white-collar job cuts to be announced today are supposed to demonstrate that he is demanding sacrifices from salaried staff as well as hourly workers, people familiar with the matter said.

Many of the cuts will come in administrative jobs at DaimlerChrysler's current headquarters in the Mõhringen section of Stuttgart, these people said.

While some staff will remain in Mõhringen, most of senior management will move to Unterturkheim because Mr. Zetsche wants his executives to be closer to the engineers designing and developing Mercedes automobiles, these people said. He is hoping closer interaction between management and engineering will enable Mercedes to stamp out the quality problems that have hurt the brand's scores in customer-satisfaction surveys by J.D. Power & Associates and other industry groups.