10,000 Jobs May Be Cut at Chrysler: No Mich. Plants Expected to Close
By Tim Higgins, Detroit Free Press
Feb. 4–Up to 10,000 Chrysler Group employees could lose their jobs, and at least three plants appear vulnerable to closure under the company’s long-awaited cost-savings plan that is to be made public next week, auto insiders say.
Michigan assembly plants are not among those expected to close, but thousands of the cuts will likely include salaried or contract workers, some of them at Chrysler’s Auburn Hills headquarters or at other locations around the state.
Chrysler, the Auburn Hills-based arm of DaimlerChrysler AG, plans to announce its restructuring plan Feb. 14, along with its 2006 earnings.
The company lost about $1.5 billion in the third quarter of last year, and speculation has mounted ever since about the unit’s future:
–Will Chrysler Chief Executive Officer Tom LaSorda lose his job?
–Will the Germans sell Chrysler?
–Will the company offer a blanket buyout package, like those used by General Motors Corp. and Ford Motor Co.?
The Valentine’s Day announcement is not expected to be as big a blow to the Detroit region as recent cost-cutting plans by crosstown rivals Ford and General Motors, which offered buyouts last year to slash their workforces by tens of thousands of people.
For now, LaSorda’s job looks secure, and several analysts doubt Chrysler could be spun off after years of blending the German and American units together.
Most say this month’s plan will focus on reducing head count and production capacity.
Chrysler employs about 80,000 people — 19% of whom are nonunion. Some analysts expect a push by Chrysler to lower the white-collar workforce through early retirement and buyouts. The Chrysler Group has 62,300 U.S. employees, about 26,000 of them in Michigan.
Kevin Tynan, an analyst with Argus Research Co., expects between 8,000 to 10,000 Chrysler jobs to be cut.
Assuming the buyout packages offered to Chrysler employees are similar to those given to Ford and GM workers, they would cost the company about $100,000 per person.
Truck, SUV plants at risk
The consensus among auto analysts is that the Newark, Del., plant looks doomed, in part because of its location on the East Coast, away from Midwest parts suppliers, and because of the drop in sales of Durango SUVs, which are assembled there.
“Obviously, they’ve got to consolidate some production facilities. I really can’t hold much hope out for the Durango plant in Newark,” said Joe Phillippi, principal of AutoTrends Consulting.
Analysts also have their eyes on the St. Louis North truck plant, which has about 2,200 workers making Dodge Ram pickups. Those trucks are also made at two other plants, one in Warren, the other in Saltillo, Mexico.
“The big thing is that they are building the Ram in multiple facilities right now,” said auto analyst Catherine Madden of Global Insight. “They have certainly made significant investment in Mexico. They may be looking at their product lineup moving forward and saying, we are not going to need three plants to do product assembly, we are only going to need two.”
Some analysts see vulnerability at the Twinsburg, Ohio, stamping plant near Cleveland because of industry trends toward having such plants near assembly facilities.
“Any of the regional stamping plants that aren’t adjacent or very close to an assembly plant could be vulnerable — I am not saying they are going to close — but as all of the domestic companies evolve toward a model that stamping is done next to the assembly plant, the regional stamping plants become vulnerable,” said Greg Gardner, a spokesman for the Harbour Consulting.
He added that it is conceivable that the Twinsburg plant, which employs about 1,800 people, could be sold, but noted that he wasn’t aware of any such plans.
In Detroit, the Mack 1 engine plant lost 250 jobs last month, and further consolidation is possible. Those cuts would likely be counted toward the restructuring plan’s more than $2-billion cost-cutting target.
Speculation and goals
Chrysler executives remain tight-lipped about the plans.
“Tom LaSorda will present the Chrysler Group’s optimization plan, first announced during the third-quarter 2006 earnings call, on Feb. 14,” Chrysler spokeswoman Shawn Morgan said. The $1.5-billion third-quarter loss was a dramatic change in fortune for Chrysler, which ended 2005 with about $1.8 billion in profit.
It is expected to lose about $1 billion for the whole year, excluding any restructuring charges. But parent DaimlerChrysler is expected to remain profitable for the year.
High gas prices last year stung the Chrysler Group hardest among U.S. automakers, all of which have relied heavily on profitable sales of pickups and SUVs. When demand for those vehicles fell, the Chrysler Group kept making vehicles that dealers hadn’t ordered.
Soon, parking lots around the Detroit area turned into holding yards for trucks Chrysler couldn’t move. By fall, the company had about 100,000 vehicles unassigned in a so-called sales bank, and the company had to pull back production to whittle that number to below 10,000.
Phillippi of AutoTrends said a major plank of the February plan should include a plan to greatly reduce the 2006 inventory on dealers’ lots.
“They are going to have to figure out a way to burn all of that inventory. I think you come up with whatever expensive, yet highly attractive, offer you can make to dealers and customers — deeply discount, leasing deals or whatever. Bite the bullet, write this stuff off and just get rid of it,” he said. “They’re going to have to take an oath to never go back to the sales bank again.”
Work on a turnaround plan began last summer, and German executives from DaimlerChrysler’s other divisions have visited Auburn Hills to share best practices.
The stated goal is to eliminate $1,000 per vehicle, which equates to about $2.3 billion in savings for the Chrysler Group.
As soon as it became clear last fall that change was coming, speculation focused on Newark, Del., home to the state’s university and a Chrysler assembly plant that employs about 2,000 people.
The Newark plant makes the Dodge Durango and the new upscale version of the Durango called the Chrysler Aspen — neither of which has been burning up the marketplace.
Durango sales dropped over the past year, and the Newark plant has been making about half of the number of vehicles it is capable of producing, analysts say.
Delaware public officials, worried about the plant’s future, have offered an incentive package to keep the plant. Union officials in Newark are telling members they won’t know their future until next week.
The situation at Chrysler is less dire than things have been at Ford or GM, but plant closures are expected anyway.
Chrysler’s plants produced 90% of their planned output in 2005, according to last year’s Harbour study. Ford, for instance, which is in the process of closing 16 plants, was at only 79%.
“They certainly don’t want to run into the overcapacity situation that Ford and General Motors have faced,” said Madden of Global Insight.
There’s also a belief that a car-based vehicle will take the place of the truck-based Durango in the Dodge lineup, she said. Such a model could be built at different locations already set up for such a platform, she added.
Some speculation has centered on the Durango and Aspen being built at the Warren truck plant, fueled by executives’ tour of the plant last fall.
But Frank Ewasyshyn, Chrysler’s executive vice president of manufacturing, said last year that moving Durango production would be challenging and require expensive retooling, including a new paint shop.
Cuts not expected to be that deep
Chrysler is not new to major restructuring plans. In 2001, the company announced a plan that called for eliminating 26,000 jobs. Since then, it has cut 40,000. In addition, the company got rid of 16 plants.
Those massive changes over the past six years should help the company avoid such deep cuts as those seen recently at Ford and GM, insiders say.
In the past year, both companies looked to reduce their workforce significantly by offering buyouts. About 38,000 Ford workers and 34,000 GM employees have decided to leave their companies.
In Ohio, UAW Local 122 President Lenny Scheutzow said rumors of closures have not fazed him.
“I’ve been at this plant over 30 years,” he said. “When I was hired in back in ’73, they were closing Twinsburg back then, and they were closing every year since.”
Contact TIM HIGGINS at 313-222-8784 or thiggins@freepress.com.
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Copyright (c) 2007, Detroit Free Press
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