The Chrysler Group, facing a $US1.2 billion loss this quarter, is stepping up pressure on some suppliers to lower prices and plans to reduce its salaried payroll by 2% this year, a report in the Detroit News said.
Spokesman David Barnas told the motor city paper that the employment cuts will come through attrition, not the layoffs that have been more common among the car maker’s ranks in recent years.
The plan is part of a new effort to cut $1 billion in costs at DaimlerChrysler AG’s Chrysler Group this year, the Detroit News said, noting that the company has already trimmed 26,000 jobs and closed six plants after posting a $4.7 billion operating loss in 2001. Those and other cuts helped Chrysler earn $639 million last year, the paper added.
The Detroit News said falling sales and higher marketing costs will force the company to lose $1.2 billion this quarter, a development that has caused some analysts to question the viability of the company’s recovery.
According to the paper, this is the final year of the company’s three-year turnaround plan but revenue growth slated to boost the bottom line has not materialised, forcing the company to ramp up cost reductions. Chrysler unit sales fell 6.3% to the end of May, the Detroit News noted, adding that the company has also delayed merit pay raises and reduced benefits for white-collar employees and retirees.
According to the Detroit News, citing Barnas, Chrysler recently sent a letter to 132 of 850 suppliers urging them to meet the lowest possible price worldwide for specific parts or “risk losing future business”.
Barnas reportedly said the letter was “not related” to Chrysler’s latest financial troubles, calling it part of a continuing effort to reduce the $25 billion it spends annually on production parts.
According to the Detroit News, Barnas said that suppliers who received the letter showed the most severe gap between their pricing and the lowest price available in the world, including price comparisons with suppliers from Europe and low-wage nations in Asia, such as China.
Barnas told the Detroit News that suppliers have been kept apprised of their pricing gap for the past nine months, and that the letter “shouldn’t have been a surprise to them.” He emphasised that Chrysler evaluates its suppliers on the quality of their parts, the paper added.
The Detroit News noted that, in 2001, Chrysler demanded across-the-board prices cuts of 5% from suppliers while an annual survey by Planning Perspectives Inc., a Birmingham research firm, this year found that Chrysler, Ford and General Motors don’t score as well in supplier relations as import brand car makers.
That is partly because they are seen as abrasive in their price-cutting demands, according to survey responses from 261 top automotive suppliers in February and March, the Detroit News said.