Daimler Chysler to Close Sterling Trucks Unit, Cut 3,500 Jobs

Oct. 14 (Bloomberg) -- Daimler AG, the world's largest maker of heavy vehicles, will close its Sterling Trucks division in North America and cut 3,500 jobs as it reins in production and shifts manufacturing to Mexico.

The reorganization involves the closure of plants in the U.S. and Canada at a cost of $600 million and is aimed at saving $900 million a year by 2011, Daimler said in a statement today. The Stuttgart, Germany-based company will retain the Freightliner and Western Star brands in the region.

Daimler and competitors Volvo AB and Paccar Inc. have seen truck sales dive as growth slows and credit markets seize up. The German company, whose U.S. deliveries fell 30 percent in the first half, will shut Sterling's St. Thomas, Ontario, factory in March and one in Portland, Oregon, in 2010, when labor deals expire. A new Freightliner plant in Mexico will open as planned.

``This is an indication of how bad things are,'' said Michael Tyndall, an analyst at Nomura Securities in London with a ``buy'' recommendation on Daimler stock. ``It's positive for the long term, but everyone's focused on the short term.''

Daimler rose 2.80 euros, or 11 percent, to 29 euros and was trading at 28.81 euros as of 1:55 p.m. in Frankfurt. That pares the stock's decline this year to 57 percent, valuing the company at 27.8 billion euros ($38.2 billion).

The Sterling brand, a maker of medium-sized models which accounts for 15 percent of Daimler's U.S. truck output, ``never met expectations'' after its purchase in 1998, company spokesman Heinz Gottwick said today.

`Always Doubts'

``They're streamlining the business, adjusting capacity in line with the market,'' said Arndt Ellinghorst, a London-based analyst at Credit Suisse with an ``outperform'' rating on Daimler, who added that ``there were always doubts'' about what Sterling stood for. ``We're going to see more of this.''

The plant closures will cost 2,300 manufacturing jobs, while an additional 1,200 administrative positions will be cut in connection with the reorganization, Daimler said. Costs will amount to $350 million in the fourth quarter, mainly for severance pay and dealer compensation, plus $150 million next year and $100 million spread over 2010 and 2011.

Mexico Moves

Production of Western Star trucks will be transferred to a plant in Santiago, Mexico. Freightliner is sticking to plans to start making its Cascadia model at a new factory in Saltillo, Mexico, in February and will shift military-vehicle manufacture to plants in North and South Carolina, Daimler said. The North American truck division's headquarters will remain in Portland.

``We are confident that this forward-looking strategy for Daimler Trucks North America is the right measure to address the challenges,'' Andreas Renschler, head of the truck division, said in the statement.

Gothenburg, Sweden-based Volvo, the world's second-largest truckmaker, suffered an 18 percent drop in North American sales in August, with the Mack brand reporting a 19 percent fall. The decline reflects ``a more pronounced softness in housing construction,'' Volvo said in a Sept. 17 statement, with tighter credit and pricier fuel also weighing on the market.

Bellevue, Washington-based Paccar, the maker of Kenworth and Peterbilt trucks, scaled back its 2008 industry sales forecast for North America in July by as much as 9 percent.

Source:  Bloomberg

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