Automaker Threatens to Try New Tactics

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DaimlerChrysler's (NYSE: DCX) current labor conflict highlights its position as a company caught between Europe and the United States. With global competition heating up, though, the German-American automotive outfit may have no choice but to adopt U.S. labor practices.

The company warned recently that it will trim its German work force by 3%, or 6,000 jobs, unless employees accept $620 million in proposed cost cuts. The restructuring involves the Mercedes unit and the planned production of the new C-Class model, due in 2007. So far, workers have agreed to $180 million in concessions but are holding the line on further reductions. Labor leaders are promising nationwide protests, and the firm has already experienced some costly work stoppages.

Meanwhile, DaimlerChrysler has been fairly aggressive with layoffs at its U.S.-based Chrysler unit; it has slashed at least 26,000 jobs in recent years and shuttered a number of plants. As painful as these cuts were, they finally appear to be bearing fruit. After a long-term slump, Chrysler is showing signs of finding solid ground, driven in part by robust sales of its new 300 sedan.

The contrast between the company's relatively free hand in the U.S. and its troubles in Germany is striking. While American unions play a significant role in the U.S. auto industry, their influence seems to pale in comparison with their German counterparts, which have helped German workers become among the best compensated in the world. And as long as profits were growing apace for Mercedes, DaimlerChrysler seemed content with its relationship with German employees.

But with Mercedes hitting a rough patch of late, the German-U.S. giant is leaning decidedly toward the American labor model. If German workers do not agree to its demands, the firm plans to shift some production to South Africa. The company also recently signed a pact to start making Mercedes vehicles in China in 2005, although this initiative is probably not nearly as large as the $3 billion investmentGeneral Motors (NYSE: GM) intends to make in that country.

Mercedes is DaimlerChrysler's most profitable segment and a symbol of Germany's automotive leadership. Ironically, in order to protect it, the company may have to become more American.

Fool contributor Brian Gorman is a freelance writer living in Chicago. He does not own shares of any companies mentioned here.