Freightliner LLC has unveiled how it plans to return to profitability by 2004.
The North American truck subsidiary of DaimlerChrysler's Commercial Vehicle Div., Freightliner plans to cut material expenditures, close up to three plants, and lay off a total of 2,700 workers — efforts designed to deliver annual savings of $850 million by 2004.
A key part of the plan will be to cut material expenditures by up to 10%, with annual savings rising to $370 million in 2004.
A major cost-reduction initiative will involve moving from six chassis platforms to three in medium and heavy trucks within the next two years.
Current chassis that will be phased out include the FLD, Business Class and Sterling heavy-duty, leaving the company with its current Century Class and Western Star Constellation heavy-duty chassis and a new medium-duty chassis that will be introduced next year, a Freightliner spokesperson said.
Freightliner plans to close several facilities, including its Woodstock, Ont., school bus assembly plant (fourth quarter of 2001) and the Kelowna, B. C., truck assembly plant (third quarter of 2002). Those closings will result in layoffs of 1,600 hourly workers.
The company also wants to close its parts manufacturing plant in Portland, OR, by mid-2002, but that depends on pending discussions with the local unions. Those closings, along with “efficiency improvements” at the company's remaining truck plants, are predicted to produce overall cost savings of $120 million annually, representing a 15% reduction in production costs.
“We are moving production of Western Star trucks to Portland and plan to continue growing that brand,” said Roger Nielsen, Freightliner's COO, in an interview with FLEET OWNER. “We hope to entice up to 20% of the highly skilled workers at that (Kelowna) facility to come to Oregon.”
Freightliner will also reduce its salaried workforce by 1,100 employees, or 25%, which should help reduce overhead costs by $170 million a year.
The company is also cutting salaries and wages for both its salaried and hourly employees by a minimum of 5%; changes will also be made to health and welfare benefits. Those changes are effective January 6, 2002. Once those cuts are imposed, Freightliner's work force will have dropped 47% in two years, down to 11,700.
Freightliner also said it will now focus on securing profitable business, which will require more stringent criteria for new truck pricing and residual commitments. Freightliner and its other truck brands, Sterling and Western Star, will also pursue vocational truck markets more vigorously.
The company also plans to stay heavily involved in the used-truck business, said Nielsen. “Let's be very clear. We are in the used-truck business to stay. We have no plans to exit the business,” he said. “We do have plans to take control of our new and used-truck pricing to make it more realistic. Business is all about risk, but we will never take the kind of risks we did (in the recent past) again. We will be more methodical.”
Freightliner has based the success of this turnaround plan on a number of market conditions. First, it predicts that demand for Class 8 trucks will hover near 175,000 units annually, with Class 6 and 7 demand staying near 160,000 units, in the U.S., Canada and Mexico from 2002 through 2004. It also expects that the increased inflow of used trucks, stemming from the high level of retail sales in 1998-2000, will continue.
