Chrysler cuts salaried jobs

By David Bailey and Helen Massy-Beresford

DETROIT/PARIS (Reuters) - A worsening global auto downturn has forced deep salaried job cuts at Chrysler, where merger talks with General Motors (GM.N) intensified on Friday, and a warning at France's PSA Peugeot Citroen (PEUP.PA).

Shares of U.S. automakers and parts suppliers also fell under a broader stock market decline on Friday, including a 26-year low at No. 2 U.S.-based automaker Ford (F.N) which is also cutting back due to the industrywide slowdown.

Chrysler aims to cut about 5,000 salaried and contract workers, or 25 percent of the white-collar staff, amid the auto industry downturn, including extending buyout offers starting in November and involuntary cuts by year end.

However, a combination of GM and Chrysler, and its potential wide-ranging impact on the auto-parts supply base that encompasses thousands of companies and millions of workers, holds centre stage in North America.

The core of the discussions between GM and Chrysler owner Cerberus Capital Management CBS.UL would be an asset exchange that leaves Cerberus with all of GMAC and a stake in the automaker itself, sources told Reuters.

Cerberus owns a 51 percent stake in GMAC, GM's former captive finance arm, and would retain ownership of Chrysler Financial, the captive finance arm for Chrysler.

Sources also told Reuters that GM is exploring other plans if the talks fail, including approaching outside investors and the U.S. government, while Cerberus remains in talks with other parties, including Nissan (7201.T).

In Europe, PSA became the latest to join a growing list of European carmakers to issue warnings, leaving investors wondering whether Volkswagen could hit its own unambitious 2008 targets.