Could Durango, Aspen land in Warren?

Analysts: Out-of-state plants may close

November 20, 2006

BY KATIE MERX

FREE PRESS BUSINESS WRITER

The Chrysler assembly plant in Newark, Del., celebrates the 2004 Dodge Durango.

It is one of two plants analysts speculate may close. The other is the St. Louis North plant.

(2003 photo by TOM NUTTER/Associated Press)

As the Chrysler Group works to cut more than $2 billion from its expenses and right its truck-heavy ship, analysts speculate that two assembly plants are in jeopardy. But -- believe it or not -- that may lead to some good news for Michigan.

Analysts say they believe Chrysler would shut down elsewhere and retrench around metro Detroit.

"The plan is not to close Michigan plants, it's to come back home," said Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor.

The two plants most at risk of closing, analysts say, are the Newark, Del., SUV plant and St. Louis North, which is one of three Chrysler plants that make the Dodge Ram pickup.

"The market is moving to very few products that need more than one plant," said auto analyst Kevin Tynan of Argus Research in New York.

Erich Merkle, director of forecasting at IRN Inc. in Grand Rapids, argues that it makes sense to move production of the low-volume Dodge Durango and the new Chrysler Aspen -- an upscale version of the Durango -- from Newark to Warren Truck.

"I think Newark will close," Merkle said. It doesn't make financial sense to operate a plant with just one shift, he said. "And the Dakota and Durango are already on the same" underbody. "You could put that over in Warren Truck right now."

If the Durango switches from a Dakota to a Ram platform, as expected, the Warren plant can handle that in stride.

Warren Truck added a third shift more than a year ago. But a decline in demand for pickups following an increase in gas prices earlier this year resulted in 19 weeks of temporary layoffs, including four weeks already this fall as Chrysler adjusted production. Workers also expect to be off the last three weeks of December. Sales of the Ram were down 11.8% in the first 10 months of the year, and sales of the Dakota were down 26.9%.

By moving the Durango and Aspen to the truck plant, Merkle said Chrysler also would "have less of a third-shift issue."

Frank Ewasyshyn, Chrysler's executive vice president of manufacturing, has said publicly that moving Durango production would be expensive, time-consuming and challenging because Warren is only able to handle pickup bodies right now. Such a move also would require Chrysler to build a paint shop -- one of the most expensive parts of a manufacturing plant -- to accommodate SUVs, Chrysler reports.

Several hourly workers at Warren Truck said Chrysler executives have been spotted touring the plant recently. Hourly workers there said they've heard the executives are contemplating whether to reconfigure the plant for the Durango.

Workers said they hope they've gone back to building trucks this month in preparation for downtime next year to accommodate the addition of the SUVs. Otherwise, they said, it makes no sense to keep building pickups that appear to be in large supply at dealerships and at storage lots around metro Detroit.

"Given their inventories, they could probably stay home until the first of the year," Merkle said.

A Chrysler spokesman said production levels are determined based on dealer and fleet orders combined with looking ahead at anticipated demand levels.

The company has said it has a lot of dealer and fleet orders and that its efforts to sell vehicles that were built without dealer orders earlier in the year are working.

Catherine Madden, a senior analyst at Global Insight in New York, said Chrysler had 136 days' supply of Ram trucks at the end of September. That was down to 110 days' supply -- just shy of four months' worth -- of Rams by the end of October, thanks in large part to incentives as high as $7,000 on some older models.

"That days' supply number should probably be in the low 70s," Madden said. "Overall for the industry, DaimlerChrysler is still in the most precarious position of the Big Three because of their inventory. They have too much inventory still, particularly on the truck side, and I think they are the most vulnerable for production cuts in the first half of '07."

That's why McAlinden said he also thinks the St. Louis North plant is at risk of closure.

The plant makes the Dodge Ram, just like Warren and a plant in Saltillo, Mexico.

McAlinden said Chrysler would be able to transfer many workers from St. Louis North to the St. Louis South minivan plant, where Chrysler is investing in new tooling and flexible manufacturing.