DaimlerChrysler today announced a comprehensive restructuring program for Freightliner designed to return the company to sustainable profitability, including plant closings, layoffs, halving the number of chassis platforms, overhauling its parts strategy, streamlining used truck operations, pursuing vocational markets, revamping pricing and residual agreements, and cutting overhead costs.
In a much-anticipated announcement, Freightliner said the restructuring plan is targeted to deliver annual savings at an operating level of $850 million by 2004.
The measures, it said, should allow Freightliner, which will report a loss reported at $1 billion in 2001, to return to breakeven toward the end of 2002. A small operating profit is anticipated in 2003, and Freightliner expects sustainable returns above the cost of capital in 2004 and thereafter. The implementation of the turnaround plan will result in one-time charges of around $330 million, to be taken in the fourth quarter of 2001.
“This multifaceted restructuring program shows that we have acted quickly and decisively to bring Freightliner back on the road to recovery and profitability,” said Dr. Eckhard Cordes, member of the Board of Management responsible for DaimlerChrysler’s Commercial Vehicle Division. “Despite the deteriorating economic climate, the Commercial Vehicle Division still foresees achieving a slightly positive result in 2001.”
The targeted savings program comprises four main elements: material cost savings, production cost savings, overhead reductions and improvements to the existing business model.
A key part of Freightliner’s turnaround plan will be the further reduction of direct material expenditures by up to 10 percent, rising to $370 million annual savings in 2004. This will be accomplished by design changes, reducing parts proliferation and a closer working relationship with suppliers to reduce costs. These reductions, it says, will come on top of savings it has already achieved with its suppliers during 2001.
In a further major initiative to reduce material costs, the company will move to three chassis platforms, from the current six, in its medium and heavy duty truck business within two years.
Freightliner will close its Woodstock, Ontario, school bus assembly plant in the fourth quarter of 2001 and the Kelowna, British Columbia, truck assembly plant in the third quarter of 2002. It will completely overhaul its parts manufacturing operation and intends to close its Portland, Ore., parts manufacturing plant mid- 2002, pending discussions with local unions.
With further efficiency improvements in the remaining truck plants, the overall cost savings of $120 million annually represent a 15 percent reduction in production costs, officials said. Some 1,600 hourly employees will be laid off.
In an additional initiative to consolidate overhead functions, the company will reduce its salaried workforce by 1,100 employees or 25 percent. Taking into account additional savings on non-manpower expenses, the overhead cost reductions will total $170 million annually.
The recent minimum 5 percent cut in pay for both salaried and hourly employees, as well as changes in health and welfare benefits, are included in the production cost and overhead savings efforts. The changes are effective Jan. 6, 2002. Compared to the peak employment levels in 1999 (25,000 employees) Freightliner had already reduced its workforce by 9,000 employees. Including the announced layoffs of 2,700 employees, the overall reduction will then total 11,700 employees or 47 percent.
“Improvements in the business model of $190 million annually reflect the need to secure profitable business rather than accumulating market share,” the company said. “In this respect Freightliner will apply more stringent criteria to new truck pricing and residual commitments.
“Additionally the cost of the used truck operations will be streamlined, while maintaining the trade capabilities of the Freightliner group, supporting and strengthening the three brands Freightliner, Sterling and Western Star. The group will more pro-actively pursue the vocational truck markets.”
Freightliner said its turnaround plan is based on assumptions of a continued slow market demand of around 175,000 Class 8 trucks and 160,000 class 6/7 trucks in North America during 2002–2004, with a resulting pressure on prices.
Freightliner has been reducing new truck inventory levels and expects that this inventory will have returned to normal levels by the end of 2001. Nevertheless, it says the turnaround plan also assumes a high inflow of used trucks stemming from the high level of retail sales in the period from 1998 to 2000. “Provisions in respect of residual values will therefore be monitored very carefully on a regular basis,” the company said.
In a much-anticipated announcement, Freightliner said the restructuring plan is targeted to deliver annual savings at an operating level of $850 million by 2004.
The measures, it said, should allow Freightliner, which will report a loss reported at $1 billion in 2001, to return to breakeven toward the end of 2002. A small operating profit is anticipated in 2003, and Freightliner expects sustainable returns above the cost of capital in 2004 and thereafter. The implementation of the turnaround plan will result in one-time charges of around $330 million, to be taken in the fourth quarter of 2001.
“This multifaceted restructuring program shows that we have acted quickly and decisively to bring Freightliner back on the road to recovery and profitability,” said Dr. Eckhard Cordes, member of the Board of Management responsible for DaimlerChrysler’s Commercial Vehicle Division. “Despite the deteriorating economic climate, the Commercial Vehicle Division still foresees achieving a slightly positive result in 2001.”
The targeted savings program comprises four main elements: material cost savings, production cost savings, overhead reductions and improvements to the existing business model.
A key part of Freightliner’s turnaround plan will be the further reduction of direct material expenditures by up to 10 percent, rising to $370 million annual savings in 2004. This will be accomplished by design changes, reducing parts proliferation and a closer working relationship with suppliers to reduce costs. These reductions, it says, will come on top of savings it has already achieved with its suppliers during 2001.
In a further major initiative to reduce material costs, the company will move to three chassis platforms, from the current six, in its medium and heavy duty truck business within two years.
Freightliner will close its Woodstock, Ontario, school bus assembly plant in the fourth quarter of 2001 and the Kelowna, British Columbia, truck assembly plant in the third quarter of 2002. It will completely overhaul its parts manufacturing operation and intends to close its Portland, Ore., parts manufacturing plant mid- 2002, pending discussions with local unions.
With further efficiency improvements in the remaining truck plants, the overall cost savings of $120 million annually represent a 15 percent reduction in production costs, officials said. Some 1,600 hourly employees will be laid off.
In an additional initiative to consolidate overhead functions, the company will reduce its salaried workforce by 1,100 employees or 25 percent. Taking into account additional savings on non-manpower expenses, the overhead cost reductions will total $170 million annually.
The recent minimum 5 percent cut in pay for both salaried and hourly employees, as well as changes in health and welfare benefits, are included in the production cost and overhead savings efforts. The changes are effective Jan. 6, 2002. Compared to the peak employment levels in 1999 (25,000 employees) Freightliner had already reduced its workforce by 9,000 employees. Including the announced layoffs of 2,700 employees, the overall reduction will then total 11,700 employees or 47 percent.
“Improvements in the business model of $190 million annually reflect the need to secure profitable business rather than accumulating market share,” the company said. “In this respect Freightliner will apply more stringent criteria to new truck pricing and residual commitments.
“Additionally the cost of the used truck operations will be streamlined, while maintaining the trade capabilities of the Freightliner group, supporting and strengthening the three brands Freightliner, Sterling and Western Star. The group will more pro-actively pursue the vocational truck markets.”
Freightliner said its turnaround plan is based on assumptions of a continued slow market demand of around 175,000 Class 8 trucks and 160,000 class 6/7 trucks in North America during 2002–2004, with a resulting pressure on prices.
Freightliner has been reducing new truck inventory levels and expects that this inventory will have returned to normal levels by the end of 2001. Nevertheless, it says the turnaround plan also assumes a high inflow of used trucks stemming from the high level of retail sales in the period from 1998 to 2000. “Provisions in respect of residual values will therefore be monitored very carefully on a regular basis,” the company said.
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