Mercedes Announces Massive Job Cuts

DaimlerChrysler said in a statement on Wednesday evening that it would slash 8,500 jobs at its top-of-the-line car maker Mercedes within the next year.

The announcment confirms speculation that had been circling over the past week that Mercedes planned to reduce its German workforce of 94,000 in order to cut costs.

Dieter Zetsche, who took control of Mercedes this month and is set to become chief executive of DaimlerChrysler at the beginning of 2006, outlined the plan to German-US auto maker's supervisory board during a meeting in the U.S. on Wednesday.

The stock market reacted positively to the speculation on Wednesday, with DaimlerChrysler shares jumping up by nearly 3 percent to 45.21 euros (US$54.27) in morning trading at the Frankfurt Stock Exchange.

Cuts via attrition

Jobs would be cut via so-called attrition or "natural wastage," where people leaving the company would not be replaced, since the German Mercedes employees are protected by an agreement of no compulsory redundancies until 2012.

The redundancy payments would knock around 100 million euros off of Mercedes' earnings, according to reports.

The job loss would be a hard blow for company morale. It was only two summers ago that weeks of negotiation led to wage accords, and the agreement that German jobs would be secured in the long term. The company appears to be backing away from the agreement, however.

Past agreements

In July 2004, Daimler workers in Germany agreed to forego wage increases in exchange for securing 6000 production jobs in the Mercedes plant at Sindelfingen. In turn, DaimlerChrysler promised to halt layoffs until 2012.

DaimlerChrysler had threatened to produce its new C-Class car in Bremen and South Africa if workers didn't agree to cost 500 million euros per year in cost-cutting measures. At the time, the IG Metall trade union had praised the compromise.