In a major restructuring of Daimler Trucks North America (DTNA), its parent Daimler AG announced that it will end production of the Sterling brand, close its Portland, OR, and St. Thomas, Ontario, truck plants, and move production of Western Star trucks to a new plant in Saltillo, Mexico, which is already slated to take over some production of the Freightliner Cascadia next year. The moves will cost approximately $600 million and result in the loss of 1,200 salaried positions and as many as 2,300 plant jobs, according to the company.

U.S. truck market conditions “have changed dramatically” and the moves are necessary “to get Daimler Trucks North America back in fighting shape,” said Andreas Renschler, the Daimler AG board member responsible for Daimler Trucks. During a phone press conference called to announce the changes, Renschler pointed to the overall U.S. economic conditions, high fuel prices, the cost of meeting diesel engine emissions standards and industry overcapacity as creating “a fundamental change in the U.S. truck market.”

An anticipated pre-buy of heavy-duty trucks in 2009 ahead of 2010 emissions changes has also evaporated, Renschler pointed out. “So we can’t wait,” he said. “We have to act now and that’s exactly what we’re doing.”

“Plans based on an expectation of brief, sharp market events driven by regulatory change, followed by periods of reasonable growth, are out-of-step with the emerging realities of the latter part of the decade,” DTNA president and CEO Chris Patterson added.

Discontinuing the Sterling brand allows DTNA “to adjust our business model with a two-brand strategy,” Renschler said. The remaining Western Star and Freightliner brands have “substantial overlap” with Sterling heavy- and medium-duty models, and additions will be made to both brand offerings to address niche markets left uncovered, he indicated.

Daimler said it expects Sterling dealers to continue offering warranty repairs, replacement parts and technical support, but that they will stop accepting new-truck orders after January. Patterson also said that DTNA could “provide alternative products to them.”

Closing the St. Thomas and Portland plants will “reduce capacity to reflect lower market expectations,” Renschler said. The closings will reduce DTNA’s current manufacturing capacity of 177,000 units by 20%, he estimated. The Sterling plant will close in March when the current Canadian Auto Workers contract expires. Portland is scheduled to cease truck building in June 2010 when labor contracts expire there.

DTNA’s headquarters, which employ approximately 2,200, will remain in Portland. Earlier this year the company moved all of its sales, marketing and customer support operations to Fort Mill, SC.

DTNA’s Cleveland, NC, truck plant currently builds the Freightliner Cascadia and Century heavy-duty models and Freightliner M2 medium-duty models. With the restructuring, the new Mexican plant in Saltillo will receive an unspecified percentage of the Cascadia builds as well as all of Western Star’s commercial production now in Portland, according to a company press release. The Cleveland plant will retain some Cascadia activity and also add Freightliner military vehicles now built in Portland.

Scheduled to open in February, the Saltillo plant offers “significant logistics and labor cost savings compared to the (two) plants closing,” according to Patterson. Cost differences at the remaining U.S. plants are “not as significant” since manufacturing and logistics operations have already been optimized there, he added.

Saltillo also offers new manufacturing flexibility that will enable DTNA to respond to any rebound in the truck market, Renschler said.

DTNA’s Sprinter, Thomas Built Buses, Fuso and FCCC brands “have not been impacted so far” by the reorganization, Renschler said during the press conference.

View full coverage of Daimler Trucks North America's restructuring plan.