SOURCE: Bloomberg News
MORE HEREDaimler to Close Sterling Trucks Unit, Cut 3,500 Jobs
By Chris Reiter and Andreas Cremer
Oct. 14 (Bloomberg) -- Daimler AG, the world's largest maker of heavy vehicles, will close its Sterling Trucks division in North America and cut 3,500 jobs as it reins in production and shifts manufacturing to Mexico.
The reorganization involves the closure of plants in the U.S. and Canada at a cost of $600 million and is aimed at saving $900 million a year by 2011, Daimler said in a statement today. The Stuttgart, Germany-based company will retain the Freightliner and Western Star brands in the region.
Daimler and competitors Volvo AB and Paccar Inc. have seen truck sales dive as growth slows and credit markets seize up. The German company, whose U.S. deliveries fell 30 percent in the first half, will shut Sterling's St. Thomas, Ontario, factory in March and one in Portland, Oregon, in 2010, when labor deals expire. A new Freightliner plant in Mexico will open as planned.
"This is an indication of how bad things are,'' said Michael Tyndall, an analyst at Nomura Securities in London with a "buy'' recommendation on Daimler stock. "It's positive for the long term, but everyone's focused on the short term.''
Daimler rose 2 euros, or 7.6 percent, to 28.20 euros in Frankfurt trading. That pares the stock's decline this year to 58 percent, valuing the company at 27.2 billion euros ($37.1 billion).
Brand Missed Targets
The Sterling brand, a maker of medium-sized models which accounts for 15 percent of Daimler's U.S. truck output, "never met expectations,'' company spokesman Heinz Gottwick said today. The unit was set up in 1998 from truck operations that Daimler bought a year earlier from Ford Motor Co.
With orders remaining on a "downward trend'' and only a "moderate rebound'' foreseen in the U.S. economy in 2009, about 88,000 trucks have been "sidelined'' in North America as companies go bankrupt or are taken over, Chris Patterson, head of the trucks division in the region, said on a conference call.
"We're not happy with the achieved return this year'' at Daimler's North American truck business, Patterson said.
Conversely, with costs at European plants running at lower levels, Daimler is "better prepared'' to cope with a shrinking market there, Andreas Renschler, head of Daimler's global truck operations, said on the call. The company is closing its "highest-cost'' plants as it can't wait for possible government bailouts to maintain profit, and expects the remaining brands to pick up customers from Sterling.
"They're streamlining the business, adjusting capacity in line with the market,'' said Arndt Ellinghorst, a London-based analyst at Credit Suisse with an "outperform'' recommendation on Daimler, who added that "there were always doubts'' about what Sterling stood for. "We're going to see more of this.''
The plant closures will cost 2,300 manufacturing jobs, while an additional 1,200 administrative positions will be cut in connection with the reorganization, Daimler said. Costs will amount to $350 million in the fourth quarter, mainly for severance pay and dealer compensation, plus $150 million next year and $100 million spread over 2010 and 2011.
Production of Western Star trucks will be transferred to a plant in Santiago, Mexico. Freightliner is sticking to plans to start making its Cascadia model at a new factory in Saltillo, Mexico, in February and will shift military-vehicle manufacture to plants in North or South Carolina, Daimler said. The North American truck division's headquarters will remain in Portland.