DaimlerChrysler to Cut 8,500 German Jobs

DaimlerChrysler (DCX) on Wednesday offered staff at its premium division Mercedes Car Group voluntary redundancy packages that aim to cut 8,500 jobs in high-cost Germany over 12 months.

The world's fifth-biggest carmaker said the move to sharpen its competitive edge would cost 950 million euros, which it will offset with extraordinary income and efficiency gains and partly finance from existing reserves.

It will book most of the costs in the last quarter of 2005.

The group reiterated its forecast for a slight rise in operating profit this year, excluding charges to restructure its Smart minicar business, from the 5.8 billion euros it posted in 2004.

The jobs move underscores German carmakers' attempts to cut manufacturing costs and boost profitability while paying the highest labor costs in the global auto industry.

The Mercedes division employed around 105,000 staff at the end of last year, of which some 94,000 were in Germany.

"These headcount reductions are indispensable. They will contribute to significant improvements in the competitiveness of Mercedes-Benz (search) through an increase in productivity," the company said in a statement. "The measures will also contribute to the sustained safeguarding of production (in) Germany."

The IG Metall (search) metalworkers union complained that what it said were "painful" cuts focused too much on savings and not enough on promoting new products that would use up excess capacity.

Volkswagen on Tuesday struck a deal with staff to make a new compact sport utility vehicle at its main German plant in Wolfsburg -- securing some 1,000 jobs -- in exchange for pay rates below what VW brand workers normally earn.

DaimlerChrysler and its works council struck a deal last year that guaranteed no worker at its German plants would be laid off through the end of 2011 in exchange for concessions that generate 500 million euros in annual savings from 2007.

Dieter Zetsche (search), who left the group's revived U.S. arm Chrysler this month to run Mercedes and will become group CEO in January, has stuck to his predecessor's goal of doubling the Mercedes division's operating margin to 7 percent by 2007.

"I am more optimistic than before that Mercedes will hit its targets by 2007," said Merck Finck analyst Robert Heberger, who has a "buy" rating on the stock.

"Both the number of job cuts and the one-off expenses are higher than I expected, but it is a positive sign that management is taking a hard line," he added.

Mercedes, long the group's cash cow, has seen profits collapse this year due to model changeovers, the strong euro, hefty losses at Smart and spending to fix quality problems at crown jewel Mercedes-Benz.

Mercedes made an operating profit of just 12 million euros in the second quarter after restructuring costs for Smart that triggered a 954 million euro first-quarter operating loss.

The division groups the Mercedes-Benz, Smart and luxury Maybach brands.

DaimlerChrysler shares ended up 3.9 percent at 45.65 euros, near a three-year high, in expectation of the job cuts.

"If you look at what's performing today in Germany, it's DaimlerChrysler as it looks like they are restructuring at a faster pace than the market expected, and this is precisely what the story is about for markets, " said Patrik Schowitz, global equity strategist at HSBC in London.

DaimlerChrysler's personnel chief, Guenther Fleig, said the Sindelfingen and Bremen plants would take the brunt of the cuts.

"We think the attractiveness is such that (staff) will take up the offer together with the outplacement counseling we are offering to find a new job," he told a conference call.