The worsening economic slowdown has led German auto giant, Daimler, the world's biggest maker of heavy trucks, to decide the shutdown of its Sterling Trucks in the US and move its production to Mexico, leading to a loss of 3,500 job loss in Ontario in Canada, and Portland in the US.

Daimler, which had about 28 per cent of the market and sales of 320,000 vehicles in 2007, will lay off 2,300 workers in Ontario, and Portland and cut 1,200 of its salaried work force.  Of these 200 cuts will be in Michigan while the remaining 1,000 staff reductions will take place across the US.

Daimler said in a statement, "A voluntary separation program will be available as well as other measures to offer flexibility and choice to affected employees."

With nearly 88,000 heavy trucks lying idle in the US since January, Daimler Trucks North America said it will reduce its capacity by 20 per cent by closing a factory in St. Thomas, Ontario, in March and a plant in Portland, Oregon, in June 2010 which would result in improving its annual earnings by $900 million through 2011.

A spokesman said that the company will cut earnings before interest and tax by $600 million. It will book expenses of around $350 million in the fourth quarter of 2008, $150 million in 2009 and $100 million over 2010 and 2011, it said.

Daimler had cut its estimate for heavy truck sales in the North American market this year by a fifth to 2,94,000 vehicles.

According to the company, the Sterling brand, which sold around 16,000 units in North America last year and accounts for 15 per cent of Daimler's North American truck business, had not met expectations and it was confident that its customers would switch to the larger Freightliner brand.

Freightliner's share of the NAFTA heavy truck market was 23 per cent last year versus 5 per cent for Sterling and 1 per cent for the premium Western Star brand, the spokesman said.

In the United States, the market deteriorated "in a way we have not anticipated," Daimler Trucks boss Andreas Renschler told a telephone press conference.

He pointed to weaker demand, a "dramatic" increase in fuel and raw material prices earlier this year and effects of the international financial crisis.

The sector was undergoing fundamental changes, Renschler said, and "a near-term recovery is not on the horizon."

With pressure to reduce production costs rising, Daimler would focus on "low-cost countries," Renschler said. It is likely to look for market in the emerging economies in Eastern Europe, India and China.