DaimlerChrysler's management is still concerned about its American division's performance as the US car market begins to show signs of weakness. As a result, new cost cutting measures are to be put in place. Collaboration between Chrysler and Mercedes-Benz however, is starting to bear fruit.

DaimlerChrysler is to introduce a new cost cutting drive at US division Chrysler, in response to increasing fears at the company's German headquarters that America's third largest car maker will miss its full year operating profit target of $US2 billion.

There are indications that the US automotive market is weakening, as a result of depression in the US economy. US car makers in particular are suffering both in costs and revenues compared to their Japanese rivals. They are at a disadvantage due to a very weak yen, which is making the Japanese models more competitive, leading Ford, GM and Chrysler to continue the heavy incentive programmes introduced at the end of 2001.

Chrysler will focus its efforts on reducing manufacturing and materials costs, which is likely to mean further pain for suppliers to the company, who have been continually reducing prices over the past couple of years. The company has successfully met its previous cost-reduction targets but the incentives battle is affecting revenues to the point where further cuts are needed.

Measures taken last month were aimed at reducing employee costs and included delaying pay rises for salaried workers from July to October, as well as increasing the amount that salaried staff must contribute to the cost of prescription drugs.

Chrysler intends to position itself as a premium brand in the market. To this end, Chrysler is already beginning to enjoy the fruits of its luxury sister company, Mercedes-Benz. Its new sports model, the Crossfire, has effectively borrowed significant components from the German firm, most notably the 3.2 litre V6 engine used in many of the models in the Mercedes range. At least this component sharing with such a prestigious company should aid Chrysler's cause at this difficult time.

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