DETROIT — Freightliner, DaimlerChrysler AG's (DCX.N)(DCXGn.DE) heavy truck division, said on Monday it will lay off 3,745 people, or 18.6 percent of its North American work force and curtail output 18 percent because of a slowdown in North American demand.

The Portland, Oregon-based unit said the heavy truck making industry has seen a "significant slowdown'' in new orders as trucking firms struggle with high fuel prices, rising interest rates and driver shortages.

The company, known for its Freightliner and Sterling brand trucks, said it expects North American heavy-duty truck sales to decline by as much as 25 percent this year, and sales on medium-duty trucks also have slowed. It is the largest heavy-duty truck maker in North America.

"We can't underestimate the impact of fuel price increases and interest rate increases on the overall economy,'' Freightliner President and Chief Executive Officer Jim Hebe told Reuters.

"The trucking industry tends to be a leading indicator by six to 12 months so this could be indicative of more things to come in the general economy,'' he added.

The layoffs and production cuts will take place on Oct. 20 in the United States and on Dec. 4 in Canada, the company said. North American heavy truck sales were slightly above 300,000 units last year, and will decline at least 25 percent this year, Hebe said. Freightliner expects to cut its capacity by about 18 percent to an annual rate of 150,000 to 160,000 units, he added.

The truck maker said the layoffs will be at plants in Portland, Oregon, 770 workers; Cleveland, N.C., 1,304; Mount Holly, N.C., 825; Gastonia, N.C., 154; St. Thomas, Ontario in Canada, 692, the company said. Freightliner employs 20,141 people in North America.

The company said other large truck makers had recently taken similar action and the only reason it was able to hold out longer was because of its order backlog entering the year and strong demand among North America's largest fleets.

In addition to the layoffs, Freightliner said it will discontinue third-shift operations at truck plants in Portland, Cleveland and Mount Holly, N.C., and St. Thomas, Ont., as well as at its parts plant in Portland. It also will end weekend shifts at its Gastonia, N.C., plant.

Freightliner is the largest heavy-duty truck maker in North America and a leading manufacturer of medium-duty trucks. The company said it holds a 35-percent share of the U.S. heavy-duty truck market and 23 percent of the U.S. medium-duty truck market.

The Freightliner unit had sales last year of about $12 billion, and it sold 200,00 vehicles in North America.

Last month, Freightliner agreed to buy Canadian heavy-duty truck maker Western Star Trucks Holdings Ltd. (WS.TO) for about $456 million. DaimlerChrysler, the world's largest commercial truck maker, also said it would buy the 79 percent of Detroit Diesel Corp. (DDC.N) for $423 million to create the world's largest producer of heavy-duty diesel truck engines.

DaimlerChrysler's stock closed up 1/16 at 56-7/16 a share