DaimlerChrysler is to cut 13,000 jobs at its loss-making US unit Chrysler.
Chrysler has seen sales fall and loses widen
It also indicated it could sell or spin off the money-losing unit, which would unwind a troubled 9-year-old merger between Chrysler and Mercedes.
The German-US group also said it would close one Chrysler factory as it continues efforts to turn around the struggling US operation.
Hit by falling sales, which were down 7% in the US last year, Chrysler has a total workforce of 83,000 people.
Chief executive Dieter Zetsche, who took over the firm's top job in 2006, said Chrysler will explore strategic options with new industrial partners.
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"We do not exclude any option in order to find the best solution for both the Chrysler Group and DaimlerChrysler," he told a medi conference.
"This means all options are on the table."
He did not indicate whether talks with potential partners had begun.
Like fellow "Big Three" US carmakers Ford and General Motors, Chrysler has been hit by tough competition from Japanese rivals.
Ford and GM are already cutting thousands of jobs in the US in an effort to reduce costs and improve their competitiveness.
The Chrysler plant that will close is its factory in Newark, Delaware.
14 main assembly plants in US and Canada
US sales down 7% in 2006
Quarterly losses of $1.5bn
Other brands: Dodge and Jeep
With a workforce of 2,100, this makes the firm's slow-selling Dodge Durango and Chrysler Aspen sports utility vehicle (SUV) models.
Overall, Chrysler is cutting 9,000 jobs in the US and 4,000 in Canada.
The job loss announcement came as DaimlerChrysler said Chrysler made a loss of 124m euros in 2006 ($162m; £83m).
Leading US car firms have all been knocked by an over-reliance on thirsty pick-ups and SUVs, at a time when more American drivers are switching to smaller more economical cars.
In the face of higher petrol prices, Japanese firms such as Honda and Toyota have been quicker to produce a range of such models.
Analysts are now questioning whether Chrysler will be spun off as a separate business.
However, Erich Merkle, of Irn Inc, said such a move was "improbable".
"If anyone can really unlock the value of an alliance between Daimler, Benz and Chrysler, it is [DaimlerChrysler chief] Dieter Zetsche.
"He is one of the turnaround kings out there. If he can't do it, no one can."
Overall, DaimlerChrysler saw a net profit of 3.2bn euros - up from 2.8bn euros a year ago - largely thanks to the performance of its Mercedes-Benz brand and its trucks business.
In mid-afternoon trading in Frankfurt, DaimlerChrysler shares were up 2.19 euros, or 4.45%, as investors welcomed the firm's efforts to match the cost-cutting measures of its rivals.
Ford has plans to close 16 factories in North America and cut 45,000 jobs.
GM has already closed 12 plants and cut more than 34,000 jobs, in a bid to cut $9bn (£4.6bn) from 2006 operating costs after a $10.6bn net loss in 2005.