Chrysler Down But Not Out — Yet

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DaimlerChrysler's announcement it will cut 26,000 jobs to staunch roughly $1.5 billion in losses brings back memories of the company's battle with bankruptcy 23 years ago.

This time around, it will take shrewd leadership and strong new products for Chrysler to survive the auto industry's continuing consolidation and brutal global competition, some experts say.

U.S. consumers are gradually turning to Asian and European brands. Mercedes-Benz, also in the DaimlerChrysler family, is expanding its SUV plant in Alabama. BMW, Honda, Nissan and Toyota are also increasing production in the South.

"It's a serious problem. It's not necessarily a fatal one, but it could become one if they don't do something on an urgent basis," said David Cole, director of the Center for Automotive Research at the Environmental Research Institute of Michigan. "There's nothing to get your attention focused like your impending hanging."

As American tastes shifted from cars to high-profit sport utility vehicles and minivans, Chrysler became an industry leader in per-vehicle profits.

But as trade barriers fell, competition became tougher than ever in the 1990s, and companies began to seek advantage through mergers and acquisitions, Cole said.

Among those consolidations was the creation of DaimlerChrysler through the merger of Chrysler with Germany's Daimler-Benz AG in 1998.

The new German-led company did not stop there, recently buying large stakes in Japan's Mitsubishi and South Korea's Hyundai to extend its global reach into Asia.

The Mitsubishi and Hyundai acquisitions were a "tremendous drain on cash, as well as on management attention," Cole said.

Both factors left the company vulnerable when the U.S. economy markedly slowed in November and demand for Chrysler's high-profit light trucks fell, he said.

In response, DaimlerChrysler Chairman Juergen Schrempp sacked Chrysler's top American management, installing Dieter Zetsche as Chrysler boss in November. He made various cuts, leading up to Monday's 20 percent work force reduction.

"To be truly competitive in today's auto industry environment, we need to be a more nimble company, more closely aligned with current and future market conditions," Zetsche said Monday.

In the long run, what matters most is Chrysler's ability to develop and make vehicles that people want to buy, said analyst David Garrity of Dresdner Kleinwort Benson in New York.

The company has some promising new vehicles in the pipeline, among them the Jeep Liberty. The light but off-road capable SUV goes on the market later this year.

Chrysler will survive, but not necessarily in its present form as a unit of DaimlerChrysler, Cole predicted. DaimlerChrysler has denied it plans to unload Chrysler.

If consumer confidence rebounds as a result of interest rate and tax cuts, Chrysler could emerge healthy and profitable, he said.

"If it continus to fall, we've got a real problem," he said.

The cuts come weeks after former Chrysler shareholders, goaded by the boasts of DaimlerChrysler's chief executive in a newspaper interview, sued the company for disguising the 1998 takeover as a merger.

As the economy slows, industries in every sector are shedding employees. Disney has decided to discontinue its unprofitable Internet division and close its Web portal. Last week, Lucent laid off 10,000, Whirlpool cut 6,000, and AOL-Time Warner trimmed 2,500.

And on Monday, Freightliner, DaimlerChrysler's commercial truck unit and the nation's largest heavy-duty truck manufacturer, announced that it will lay off 1,085 employees and cut production of heavy trucks in half.

Former United Auto Workers President Doug Fraser said comparisons with Chrysler's brush with bankruptcy two decades ago are unwarranted.

"This situation is not nearly as difficult as it was in 1979, '80 and '81," Fraser, who is now a professor at Wayne State University's College of Urban, Labor and Metropolitan Affairs.

Former Ford executive Lee Iacocca saved Chrysler Corp. from bankruptcy by negotiating a federal bailout package, closing plants and laying off workers.

At that time, Chrysler was caught unprepared by spiking gasoline prices and the public's shift to small cars.

Job cuts, plant closings and popular new vehicles worked to reverse Chrysler's fortunes.

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