Chrysler axes 5,000 jobs

Cerberus Capital holds talks on sale of majority stake with GM and Nissan-Renault.

Workers leave the Chrysler plant in Toledo, Ohio, where around 800 jobs will be lost.

DETROIT // As talks over the potential sale of Chrysler continued, the struggling car maker told workers that it will slash a quarter of its salaried workforce and make further cuts to deal with a plunge in sales. Negotiations for Chrysler's sale or merger, which involve its majority owner, Cerberus Capital Management, General Motors and the combined Nissan-Renault, were continuing over the weekend. They are complicated by items such as tax liabilities, tight credit and the slowing economy, according to a source.

Multiple parties remain involved in the talks, which involve several configurations that could include the sale of Chrysler in its entirety, or a partial sale. Under the job cuts announced on Friday, Chrysler, which has about 18,500 white-collar workers, will shed about 5,000 salaried workers and contract employees. The chief executive Bob Nardelli said in a memo to staff more restructuring was coming at a pace faster than before. "We recognise 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 said.

Industry analysts said his comments hinted at further plant closures and layoffs as the company shrinks itself to be acquired or perhaps signs deals for other car makers to design and even produce its vehicles. The cuts were so dramatic that they probably spelled the end for Chrysler as an independent company, said Aaron Bragman, an industry 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.

GM and Chrysler have declined to comment on the talks except to say discussions between car manufacturers are routine. Cash-starved GM would benefit by gaining access to Chrysler's about US$11 billion (Dh40.4bn) stockpile, while Nissan-Renault may be interested in forming an alliance with Chrysler to give it a stronger North American presence. GM, the nation's largest car maker, is losing more than $1bn in cash a month and is trying to stay afloat until the 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 by next year.

GM shares fell 15 cents or 2.5 per cent, to $5.95 on Friday. A GM acquisition may involve going to the US Congress for cash, according to another source. The government may get involved to preserve jobs in the industry and protect Chrysler's pension plan, which has about 125,000 people receiving benefits. Chrysler employs about 49,000 people in the US. Chrysler's sales were down by 25 per cent in the first nine months of the year, the worst decline of any major car maker.

Mr Nardelli said the industry was going through "truly unimaginable" times. "We continue to be in the most difficult economic period most of us can remember. The combination of troubled financial markets, difficult credit, volatile commodity prices, the housing crisis and declining consumer confidence continues to weigh on the economy. Never before have auto industry sales contracted at such a fast rate," he said. * Associated Press