DaimlerChrysler AG (NYSE: DCX) will downsize its Chrysler Group unit by cutting 13,000 jobs, or 16 percent of its total workforce, in a bid to make its North American division return to profitability by 2008.

The German firm unveiled a three year plan Tuesday that will spread out the job cuts from 2007 to 2009. There will also be a $3 billion investment made to create cars with greater fuel efficiency.

In addition to the plan, he firm will look into further strategic options with partners and we do not exclude any option in order to find the best solution for both the Chrysler Group and DaimlerChrysler, said the firm's Chairman, Dieter Zetsche.

The company will also explore ways to expand beyond North America, which is 90 percent of its current market.

Wall Street reacted favorably to the news. Shares of the firm rose 4.55 percent on Wednesday, or $2.97, to $67.42 in morning trading on the New York Stock Exchange.

As part of the plan, Chrysler group expects to reduce production capacity by 400,000 vehicles per year.

A $3 billion powertrain investment for greater fuel efficiency will result in 20 all-new and 13 refreshed models in three years, the company said.

Job cuts will include 11,000 factory workers and cuts will begin with shift eliminations at its Newark, Del. and St. Louis, Mo. assembly plants. The Newark plant will close by 2009. A Cleveland, Ohio distribution plant will close in December of 2007 as well.

Programs for retirements, terminations and attrition programs will be announced at a later time.

Since 2001, the company has shut down or old 16 plants and reduced its workforce by a third.

Chrysler Daimler AG