Chrysler to cut 5,000 salaried workers

updated 7:35 p.m. ET Oct. 24, 2008

DETROIT - As talks over the potential sale of Chrysler LLC continued, the struggling automaker said Friday that it will slash 25 percent of its salaried work force and make further cuts to deal with a continued downward spiral in U.S. auto sales.

Negotiations for Chrysler’s sale or merger, which involve majority owner Cerberus Capital Management LP, General Motors Corp. and the combined Nissan Motor Co.-Renault SA, were to continue into the weekend. But they are snagged on items such as tax liabilities, tight credit and the slowing economy, according to a person briefed on the talks.

The person, who asked not to be identified because the discussions are private, said multiple parties remain involved in the complex talks, which include several possible configurations such as the sale of Chrysler in its entirety, or a partial sale of the company.

Under the job cuts announced Friday, Chrysler, which has about 18,500 white-collar workers, will get rid of about 5,000 salaried workers and contract employees — those who work for other companies under contract with the automaker.

Chief Executive Bob Nardelli, in a memo to employees obtained by The Associated Press, warned that more restructuring is coming at a pace faster than before.

“We recognize that in order to strengthen our competitive capability, and reduce the time and cost to achieve our objectives, we cannot operate as we have in the past,” he wrote. “In the near future, we will be making organizational announcements as a result of restructuring actions reflecting the need to find new ways to operate.”

Industry analysts said Nardelli’s comments likely mean further plant closures and layoffs as the company shrinks itself to be acquired or perhaps signs deals for other automakers to design and even produce its new vehicles.

The cuts are so dramatic that they likely spell the end for Chrysler as in independent company and indicate it is preparing to be sold, said Aaron Bragman, an auto analyst with the consulting company IHS Global Insight.

“Cutting fully one-quarter of your staff is not the way to develop future vehicles,” he said.

The prospect of further cuts has scared already-weary Chrysler employees who have been working under the shadow of sale talks.

Jerry Fogarty, who works at the company’s Trenton, Mich., engine plant, figures GM will consolidate even more if it takes over Chrysler.

“If GM takes us, man, we’re done,” said Fogarty, of Wyandotte. “I’ve got 16 years. I’ll lose my damn job. I already see it coming.”

GM and Chrysler have declined to comment on the sale talks except to say discussions between automakers are routine.

Cash-starved GM would benefit by gaining access to Chrysler’s roughly $11 billion stockpile, while Nissan-Renault may be interested in forming an alliance with Chrysler to give it a stronger North American presence, and it may even take an equity stake in the company.

GM, the nation’s largest automaker, is burning through more than $1 billion in cash per month and is trying to stay afloat until the U.S. auto market recovers. Industry analysts say that may not be until 2010, and without a recovery, GM could burn up so much cash that it could reach the minimum required to run the company sometime next year.

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