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Cablegate: Proposed Daimler-Chrysler Cost-Cutting Measures

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 FRANKFURT 006240

SIPDIS

DEPARTMENT FOR DRL/IL
DEPT PASS DOL/ILAB (BRUMFIELD)
TREASURY/OASIA FOR MCDOWELL
DEPT PASS FEDERAL RESERVE BOARD FOR ELLEN MEADE

USDOC FOR COMMERCIAL SERVICE

E.O. 12958: N/A
TAGS: EIND ELAB ECON ETRD ELTN GM
SUBJECT: Proposed Daimler-Chrysler Cost-Cutting Measures
Spark Union Outrage

REF: BERLIN 2178

Sensitive but unclassified -- not for internet distribution

1. (U) SUMMARY: Emulating an earlier approach by Siemens,
German auto giant Daimler-Chrysler has demanded from IG
Metall cuts in bonuses under the threat of moving 6,000
jobs from their main plant in Sindelfingen to either Bremen
(where the Mercedes C-Class model costs 500 Euro less to
produce) or South Africa to save 500 million Euro (USD 617
million). The Daimler-Chrysler works council has agreed to
make concessions totaling 180 million Euro so far. On July
15, about 80,000 Daimler-Chrysler employees participated in
a nationwide two-hour strike to protest the company's
drastic cost-cutting plans. Daimler-Chrysler management has
expressed provisional willingness to reduce management
salaries as a gesture of goodwill to works council and
union members. Daimler sources are confident that they can
reach an agreement that allows C-Class production to remain
in Sindelfingen. END SUMMARY.

2. (U) In response to sluggish sales, Daimler-Chrysler has
called for cost reductions totaling 500 million Euro for
its 42,000-employee Sindelfingen plant, the primary site of
C-Class production and the largest Mercedes plant in
Germany. Using its production facility in Bremen as a
model, the company is seeking concessions from its works
council and the Metal Workers Union (IG Metall) on cutting
special bonuses granted only to workers in Baden-
Wuerttemberg, including a five-minute break every hour and
late-shift supplements starting at noon. B-W Daimler
employees also currently enjoy three more public holidays
per year than their Bremen colleagues. Mercedes Chief
Juergen Hubbert claims that Bremen employees work 72 more
hours per year than their Sindelfingen colleagues and
attributes the disparity to the "Baden-Wuerttemberg
disease." Hubbert has called for the elimination of these
"Sindelfingen" benefits by spring of 2005 and has
threatened relocation of C-Class production to Bremen or
South Africa if union and works council do not accept the
reductions. Relocation of C-Class production would make
approximately 6000 jobs at the Sindelfingen facility
redundant.

3. (U) In response to management's demand, Daimler-
Chrysler's works council has agreed to cost reductions
totaling 180 million Euro so far, but indicated that
further cuts also required concession by management. Erich
Klemm, chairman of the Daimler-Chrysler works council, and
Joerg Hoffmann, chief of IG Metall Baden-Wuerttemberg,
accuse Daimler-Chrysler management of jumping on the
Siemens bandwagon to extend the workweek and cut benefits
(reftel). Klemm described Hubbert's offer as a violation
of existing contracts and said that management proposed the
cuts only to increase its own profit margin. Worker
response has been considerable: on July 10 and 17, ten
thousand employees failed to report for the early shift at
the Sindelfingen plant, and on July 15, 60,000 Daimler-
Chrysler workers participated in a nationwide "action day"
to protest the Daimler-Chrysler initiative.

4. (U) B-W Minister-President Erwin Teufel (Christian
Democrat-CDU) condemned Hubbert's use of the term "Baden-
Wuerttemberg disease" while conceding that B-W needed to
extend its workweek to remain competitive. Teufel noted
that Daimler-Chrysler should coordinate any curtailment of
Christian holidays with B-W churches. B-W employer
association chairman Hans-Eberhard Koch concurred with
Teufel's assessment that Hubbert's statement was far too
negative but agreed that relatively higher labor costs in
Baden-Wuerttemberg were a barrier to effective competition
within Germany.

5. (U) In a lunch with consulate representatives, Daimler-
Chrysler chief economist Peter-Ruediger Puf echoed the
message that labor and production costs in SW Germany were
too high. Puf took issue, however, with the tenor of
Hubbert's cost-cutting strategy and criticized as unhelpful
his threat to move production facilities to South Africa.
He noted that it would have been better to advertise the
cuts as a necessary step to keep jobs and production at
home. He pointed out that Daimler-Chrysler competitor BMW
does not provide additional Sindelfingen-style benefits to
its employees and as a result enjoys a cost advantage of
around eight percent. (NOTE: Other observers also cite
BMW's highly flexible production schedule virtually
around the clock, six days a week as a significant reason
for the company's cost advantage. END NOTE.)

6. (U) On July 15, Daimler-Chrysler CEO Juergen Schrempp
expressed his public expectation that a compromise could be
reached and added that he expects a resolution of the
dispute by July 23 or earlier. Schrempp qualified
Hubbert's use of the term "Baden-Wuerttemberg disease" by
saying that the term applied only to working conditions in
Sindelfingen and not to B-W as a whole. Meanwhile, a
company spokesperson confirmed on July 18 that management
has agreed to wage cuts as an incentive for works council
and union to accept the overall package of cost reductions.

7. (SBU) COMMENT: Mercedes has long been the most
important profit center within the Daimler-Chrysler group.
In 2003, the Mercedes-Benz group contributed 3.1 billion
Euro to Daimler-Chrysler's overall 5.7 billion Euro net
operating profit. Daimler-Chrysler often has used its
extensive benefits system in SW Germany to negotiate
favorable packages with IG Metall and worker
representatives that smaller companies are unable to match.

8. (SBU) COMMENT (cont'd): Chrysler Group COO and Mercedes
heir apparent Wolfgang Bernhard lost his job recently for
discussing publicly the need for cost-cutting measures and
the movement of production facilities abroad. Hubbert's
absolutist ultimatum has further aggravated sensitivities
on this issue and alienated some labor representatives.
Since Hubbert's announcement, Daimler has focused on damage
control (downplaying his comment on the "Baden-Wuerttemberg
disease") and concessions designed to entice labor back
into the fold (the mooted cuts in management compensation.)
Although the company likely will reach a compromise that
allows production to remain in Sindelfingen, Daimler's
initial lack of surefootedness in announcing the cuts has
certainly muddied the waters. END COMMENT.

BODDE

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