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DaimlerChrysler Announces Freightliner Turnaround Plan

October 16, 2001

Freightliner LLC, the North American truck subsidiary of DaimlerChrysler’s Commercial Vehicles Division, announced on Oct. 12, 2001, a comprehensive restructuring program designed to return the company to sustainable profitability. The restructuring plan aims to deliver annual savings at an operating level of $850 million by 2004. The measures would allow Freightliner, which will report a loss in 2001, to return to break-even 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 2001, reflecting separation payments and other costs related to decisions taken to exit current activities. 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. These reductions will come on top of savings that Freightliner 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. Freightliner also plans to completely overhaul its parts manufacturing operation and intends to close its Portland, OR, parts manufacturing plant mid-2002, pending discussions with the 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. Freightliner will lay off 1,600 hourly employees. Freightliner 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 recently announced minimum 5-percent cut in salaries and wages for both its salaried and hourly employees, as well as changes in health and welfare benefits are included in the production cost and overhead optimization efforts set out above. 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. The improvements in the business model of $190 million annually reflect the need to secure profitable business rather than accumulating market share. 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 pursue the vocational truck markets. The current CFO of Freightliner, Dr. Udo Schnell, will assume new responsibilities as the new CEO of Mercedes-Benz Lenkungen GmbH, the Duesseldorf-based steering gear subsidiary of DaimlerChrysler AG. A successor will be announced shortly.
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