Chrysler Cuts Could Hurt Ford

Chrysler CEO Nardelli's plan to slash 10,000 jobs could damage Ford's negotiations with the UAW

Chrysler Chief Executive Officer Robert Nardelli has a reputation for being a fierce competitor and a tough manager. Ford Motor (F) is finding out just how tough. After narrowly getting a new contract with the United Auto Workers union ratified less than a week ago, Chrysler muddied the waters for Ford, which is still negotiating with the union, by announcing a job cut of up to 10,000 more workers than it had already announced.

Negotiations with the union by the Big Three U.S. automakers began after Labor Day weekend in September. Talks are dragging on longer than usual because all three companies are suffering financially and are wrangling for much-needed relief from the union on health-care costs. General Motors (GM) and Chrysler already have deals in place. And Chrysler's deal, negotiated by union management, faced tough opposition from rank-and-file union members, who wanted more job security guarantees in exchange for agreeing to pay more for health insurance and medical costs.

Ford Will Feel the Pressure

Thursday's job cut announcement by Chrysler will make it tougher for Ford to get the factory closures it's looking for on top of a new health-care pact that will result in Ford turning over management of hourly employees' health-care to the union after the carmaker contributes billions of dollars to a UAW-run health-care fund. The shift of health care to the union gets future health-care liabilities off Ford's books, which promises to improve its debt ratings, share price, and operating costs. Said one high-ranking Ford executive, "No question this [Chrysler's job cut announcement] is going to make things tougher."

Ford has said it will close 16 North American factories as part of its restructuring but has so far identified only 10 of those facilities. Ford has 33 UAW-represented factories in the U.S. Closing the six unidentified plants is believed to be key to Ford achieving profitability by 2009, its stated target. And with so many extra jobs being cut at Chrysler, Ford executives are worried the union will dig in and make closing them more difficult.

Chrysler, which was taken over by Cerberus Capital Management, a private equity firm, last August, is looking to hack costs at Chrysler in the hopes of generating profit at a time when the overall auto market is soft and when Chrysler's newest vehicles are not selling especially well.

Dropping Shifts, Killing Some Models

Hourly workers are not the only ones affected. Chrysler is also cutting another 1,000 salaried jobs, along with about 37% of its contract workers, the company said. It also will eliminate hourly and salaried overtime. The cuts in the hourly workforce would equal about 17.5% of the company's 57,000 union employees in the U.S. and Canada.

Chrysler is also killing several slow-selling models, which is why so many hourly workers are on the block. Chrysler will phase out the Dodge Magnum, the Chrysler Crossfire, the PT Cruiser convertible, and the Chrysler Pacifica. At a time when crossover SUVs are popular, the station-wagon-like Pacifica and Magnum proved to be busts in the marketplace. The Crossfire was built on a Mercedes-Benz chassis when DaimlerChrysler owned 100% of Chrysler to prove how the two companies—Chrysler and Mercedes-Benz—could collaborate. But it flopped.

Chrysler will drop shifts at Belvidere (Ill.) Assembly, Jefferson North in Detroit, Toledo (Ohio) North, Brampton (Ontario) Assembly, Sterling Heights (Mich.) Assembly, and Mack Avenue Engine Plant II in Detroit. Three of the plants, Belvidere, Toledo, and Brampton, will eliminate a third shift.

Nardelli's Hairpin Turnaround

Chrysler also said it will add new products to replace the discontinued ones: the Dodge Journey crossover and Dodge Challenger coupe. It also will add two hybrid SUVs, the Chrysler Aspen and the Dodge Durango.

"The market situation has changed dramatically in the eight months since Chrysler established the Recovery and Transformation Plan as its blueprint," Nardelli said in a statement, referring to a turnaround plan announced before the Cerberus acquisition. "Annual industry volume [for the U.S. market] then was running at a 17.2 million clip. Now we expect a seasonally adjusted annual volume for 2007 to be significantly lower and carry over into 2008,"

Chrysler lost $1.47 billion in 2006, when it was still a unit of DaimlerChrysler.

Click here to see a round-up of Chrysler's recent hits and misses.

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