Cuts at Chrysler: A Sign of the Times?

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Usually, nobody loves pink slips like Wall Street. Job cuts are how bloated companies — and newly married behemoths — cut costs, and of course a few thousand more unemployed can do wonders for Alan Greenspan's inflation fears.

But we're in an economic slowdown now, a slowdown that has already turned into a recession in the manufacturing sector. And so when German-American carmaker DaimlerChrysler led Monday's business sections with the announcement that it would be cutting 26,000 jobs over three years, all on the money-losing Chrysler (American) side of the Atlantic, the Street sighed and sold the company's stock down $1.14 to $47 by noon.

Only a buck? That's partly because trading was extra cautious Monday ahead of the Fed meeting Wednesday, partly because this was the kind of news that traders generally love to hear — the slenderizing cuts are designed to return the division to profitability — and partly because it wasn't much of a surprise.

DaimlerChrysler, the world's fifth largest automaker, is already one of the shakiest corporate mergers in recent memory, and in this global age a living warning of the dangers of merging across the pond. The company announced a $512 million loss in its U.S. operations (which, when they were Chrysler, were actually rather profitable) in the third quarter last year, and that figure is expected to double in the fourth quarter. The company has blamed the high cost of launching new vehicles and an increasingly competitive U.S. market.

"The markets are deteriorating, and our company's performance even more so. Competition is brutal," Dieter Zetsche, Chrysler's new president, said at a news conference Monday in Detroit. "North American manufacturers are under pressure from imports and an incentive war is on."

The job cuts, to come through a combination of retirements, special programs, layoffs and attrition, will involve 19,000 hourly workers, 6,800 salaried employees and one U.S. plant closing. That's a lot of autoworkers, even in this season of layoffs across the corporate spectrum, and this latest announcement has folks even more worried than usual about how low the U.S. economy is going to go before it bottoms out.

It's even possible that the Chrysler news is the straw that bumps the Fed up from the expected quarter-point rate cut Wednesday to a half-point. Which would make Wall Street very happy indeed.