PORTLAND, Ore. (Oct. 12, 2001) — Freightliner LLC will close its Western Star truck plant in Kelowna, B.C., in next fall and a school bus plant in Woodstock, Ont., as part of a wide-ranging plan to cut costs and return the company to profitability.

The restructuring plan, announced this morning, will deliver annual savings of $850 million (all figures US dollars) by 2004, said officials with DaimlerChrysler AG, Freightliner’s parent company. The measures should allow Freightliner, which reported will lose $1.2 billion this year, to break even by the end of 2002. A small operating profit is anticipated in 2003, and Freightliner expects sustainable returns above the cost of capital in 2004 and thereafter.

The implementation of the turnaround plan will result in one-time charges of around $330 million, to be taken in the fourth quarter of this year.

“This multifaceted restructuring program, shows that we have acted quickly and decisively, to bring Freightliner back on the road to recovery and profitability,” said Dr. Eckhard Cordes, the DaimlerChrysler management board member responsible for commercial vehicles.

What follows is text from DaimlerChrysler’s statement on its restructuring plan, which comprises four main elements: material cost savings, production cost savings, overhead reductions and improvements to the existing business model:

Material Cost Savings

A key part of FreightlinerÕs turnaround plan will be the further reduction of direct material expenditures by up to 10 percent, rising to $370 million annual savings in 2004. This will be accomplished by several initiatives; design changes, the reduction of parts proliferation and a closer working relationship with suppliers to reduce costs within the value chain. These reductions will come on top of savings that Freightliner has already achieved with its suppliers during 2001.

In a further major initiative to reduce material costs, the company will move to three chassis platforms, from the current six, in its medium and heavy-duty truck business within two years.

Production Cost Savings

Aligning the production cost more fully with reduced underlying demand, Freightliner will close its Woodstock, Ont., school bus assembly plant in the fourth quarter of 2001 and the Kelowna, B.C., truck assembly plant in the third quarter of 2002. Freightliner also plans to completely overhaul its parts manufacturing operation and intends to close its Portland, Oregon parts manufacturing plant mid 2002, pending discussions with the local unions.

With further efficiency improvements in the remaining truck plants the overall cost savings of $120 million annually represent a 15% reduction in production costs. 1600 hourly employees will be laid off.

Overhead Reductions

In an additional initiative to consolidate overhead functions, the company will reduce its salaried workforce by 1100 employees or 25%. Taking into account additional savings on non-manpower expenses, the overhead cost reductions will total $170 million annually.

The recently announced minimum 5 percent cut in salaries and wages for both its salaried and hourly employees, as well as changes in health and welfare benefits are included in the production cost and overhead optimisation efforts set out above. The changes are effective Jan. 6, 2002.

Compared to the peak employment levels in 1999 (25,000 employees), Freightliner had already reduced its workforce by 9000 employees. Including the announced layoffs of 2700 employees, the overall reduction will then total 11,700 employees or 47%.

Improvements to the Business Model

The improvements in the business model of $190 million annually reflect the need to secure profitable business rather than accumulating market share. In this respect Freightliner will apply more stringent criteria to new truck pricing and residual commitments. Additionally the cost of the used truck operations will be streamlined, while maintaining the trade capabilities of the Freightliner group, supporting and strengthening the three brands Freightliner, Sterling and Western Star. The group will more pro-actively pursue the vocational truck markets.

Underlying Assumptions

FreightlinerÕs turnaround plan is based on the following conservative assumptions. A continued slow market demand of around 175,000 Class 8 trucks and 160,000 class 6/7 trucks in the NAFTA area throughout the period 2002Ð2004, with a resultant pressure on prices. Additionally, Freightliner has been reducing new truck inventory levels and expects that this inventory will have returned to normal levels by the end of 2001.

Freightliner has also made progress in reducing used truck inventory levels and will continue to work on this further. Nevertheless the turnaround plan also assumes a high inflow of used trucks stemming from the high level of retail sales in the period from 1998 to 2000. Provisions in respect of residual values will therefore be monitored very carefully on a regular basis.

Personnel Issues

The current CFO of Freightliner, Dr. Udo Schnell, will assume new responsibilities as the new CEO of Mercedes-Benz Lenkungen GmbH, the Duesseldorf based steering gear subsidiary of DaimlerChrysler AG. A successor will be announced shortly.