Tough times for Chrysler put Newark plant at risk
Jobs safe until '07, but workers starting to worry
If DaimlerChrysler were to shut down the Newark plant, the closure would be a huge blow to the state's economy. News Journal file/ROBERT CRAIG
"When you've got a captive audience
of 1,900 right next to you, [it's good
for business.] The relationship's been
pretty good over the years," said Matt
Baxter, manager of Delaware Tire
Center in Newark, next to Chrysler plant.
The DaimlerChrysler assembly plant
in Newark has been the target of closure
speculation many times during the
past few decades. News Journal file/JENNIFER CORBETT
"They built the Durango over there,
then some genius decided to build a
bigger SUV. Was that a German decision
or what," asked Joe Lango, Delaware Tire Center.
"When they're shut down for any period of time, I can sit here all day and do nothing," said Rich Megginson, manager of Peddlers Pit Stop, a liquor store near the plant that counts on off-duty Chrysler workers for about 75 percent of its daytime business
Speculation Friday that Chrysler could shut down its Newark assembly plant as part of a cost-saving initiative is a wake-up call for Delaware, business and government leaders said.
The news that the plant could be targeted for closure, first reported by the Wall Street Journal, seemed to reawaken Delaware to the vulnerability of its auto assembly plants in today's fiercely competitive global automobile market.
Chrysler Group officials in Auburn Hills, Mich., said no decision has been reached to shut down any of its plants, although a company spokesman would not rule out the possibility that Newark could be closed as part of the cost-cutting effort.
"Everything is on the table," said Shawn Morgan, senior manager of corporation communications with Chrysler.
Chrysler's deteriorating profit picture and some well-known problems with the plant made the report hard to ignore. Perhaps because of the economic stake Delaware has in the plant, officials took the possibility of closure seriously.
"Everybody needs to help out at all government levels," said Rep. Mike Castle, R-Del., who was governor in December 1992 when General Motors Corp. announced it would close its Boxwood Road assembly plant near Newport in three years. The state mobilized and convinced GM to reverse its decision.
The Newark operation, which makes Dodge Durangos and Chrysler Aspens, employs about 2,100 people in Delaware. If Chrysler were to close the Newark operation, it would be an economic blow to the state, said James A. Wolfe, chief executive of the Delaware State Chamber of Commerce and former plant manager of Chrysler's Newark plant.
Studies have shown that for every $1,000 earned by workers at the plant, $3,000 is generated in the state, he said.
Under the contract with the United Auto Workers, Chrysler can't shut down a plant during the life of the labor contract, Morgan said. The current labor contract runs until September 2007, she said. The plant could be idled, but employees would have some job and income protection, said Roger Kerson, spokesman for the UAW in Detroit.
But Wolfe said "that doesn't mean that the plant can't be targeted for closing." Wolfe said he was sent to the Newark plant in 1992 to "close the place."
Erich Merkle, director of forecasting with IRN Inc., an automotive consulting firm in Grand Rapids, Mich., said it's just a matter of time until Chrysler closes the plant.
"I would be surprised if we don't hear something at the end of this year or early next year," Merkle said. "I think it's a case of when, not if."
Looking at all its options
Chrysler has said it is evaluating all its operations in an effort to trim costs and boost sales under an initiative dubbed Project Refocus. Chrysler Group, the U.S. division of DaimlerChrysler AG in Stuttgart, Germany, began Project Refocus in July after the company announced its third-quarter earnings would fall short. The company has since said it expects a third-quarter loss of $1.5 billion.
Morgan said there's no timetable for when the recommendations from Project Refocus would be announced.
The task at hand for Delaware is to get busy to save the plant, leaders said. For many, the news revived memories from December 1992 and the GM announcement. Then, the plant's closure was averted.
"I know it sounds corny, but we need to focus every day on providing a nurturing environment for job creation and job preservation, especially manufacturing jobs," said Sen. Tom Carper, who, as Delaware's governor, worked for 18 months to save the GM Boxwood Road plant.
Castle said the state needs to dust off the playbook from the early 1990s.
"I don't think things have fundamentally changed," he said.
Wolfe agreed.
"We're not really aggressively fixing those issues that are hurting business. They need to step up to the pump like they did with MBNA and Bank of America," he said.
'Not going away tomorrow'
Catherine Madden, senior analyst with the auto group at Global Insight, an economic forecasting and financial analysis company in Lexington, Mass., said there has been talk in the past that the Newark plant would be closed.
But Madden believes Chrysler is telling the truth when it says no decision has been made.
"From an analyst's perspective, the Durango is not going away tomorrow," she said.
But sport utility vehicles are under tremendous pressure as consumer tastes have changed, she said.
Buyers are showing increasing interest in more fuel-efficient vehicles. Consumers are increasingly attracted to the crossover utility vehicle, like the RAV4 made by Toyota, because it rides more like a car, Madden said.
"The Durango is really under significant pressure with declining sales," she said.
The bad signs
Merkle said he believes Newark will be on the chopping block. The bad signs for the plant include:
•No new products have been announced for Newark (apart from Aspen, which is considered a higher-end Durango).
•No new investment is projected for the plant.
•The Durango and Aspen can be made at the Warren, Mich., truck assembly plant because the Durango shares the same platform as the Dodge Dakota pickup truck.
"The light is flashing red for Newark right now. If Chrysler were to close a plant, Newark is at the top of my list," Merkle said.
According to Merkle, the Newark plant made 109,875 Durangos in 2005. That number is expected to fall to 94,000 Durangos and Aspens in 2006, she said.
At the peak in 1999, the plant was producing 220,000 vehicles a year.
"They're struggling to keep 50 percent production capacity," Merkle said.
Wolfe, who knows intimately the Newark operation, said the plant has other strikes against it when it comes to competing with plants in other states, including the state's gross-receipts tax, strict environmental regulations and the high cost of workers compensation.
If Delaware could remedy some deficiencies at the state level, it could offset larger factors, such as the high cost of health care benefits.
When it comes to a cost comparison with plants in other states, the Newark plant also suffers from being on the East Coast because it raises transportation costs, Wolfe said.
Ninety percent of the parts have to be shipped to the East, he said. He said those factors add $400 to $500 to the cost of each vehicle.
"It's expensive to do business on the East Coast," Wolfe said.
Completed cars have to be shipped again, he said. A large percentage of new car sales are in California, Madden said.
The number of American auto assembly plants on the East Coast has dropped from about 10 in the 1980s to three today, Merkle said.
"And it's going to go to one, and that will be the GM plant in Delaware," Merkle said.
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