Chrysler weighs moving vs. staying
Newark facility vies with michigan plant
Dodge Durango
shown here, and Chrysler Aspen share
their platform with the Dodge Dakota
pickup, which is assembled at the Warren, Mich., plant.
The News Journal file/FRED COMEGYS
A month after rumors circulated of Chrysler's possible plans to shutter its Newark plant, analysts remain divided on the fate of the plant and its workers.
Auto analysts agree Chrysler is under intense pressure to slash costs and make its North American plants more efficient. They also agree the company will continue production of the Dodge Durango and Chrysler Aspen, both of which are assembled in Newark.
Chrysler expects to report a loss in 2006 totaling $1.3 billion and has yet to figure out how it plans to restructure its operations and trim costs. Company officials have said that everything, including closure of the Newark plant, is a possibility.
The question is whether Chrysler can justify keeping a plant open with only one shift. Higher gas prices and a shift in consumer tastes away from large SUVs to smaller, more fuel-efficient trucks have shrunk Durango sales by double digits virtually every month for most of this year.
Chrysler needs to determine whether it is more cost effective to shut down its Newark plant, which employs about 2,100 people, and transfer production elsewhere, or keep it operating.
"It is too premature to make any conclusion because it is not the end of the world for the Durango and the Aspen yet," said Guido Vildozo, auto analyst at Global Insight in Lexington, Mass. "Chrysler is still reviewing what their strategy is going to be."
But some analysts already have begun making forecasts.
"Newark will close and we have that production transferring to the Warren truck plant," said Erich Merkle, director of forecasting at IRN Inc. in Grand Rapids, Mich. He predicts the change will occur in 2009.
If Chrysler decides to move production of the Durango and Aspen to another plant, the most likely candidate is the Warren, Mich., which makes the Dodge Ram, Dodge Dakota and Mitsubushi Raider. The Dakota pickup uses the same platform, or underbody, as the Durango and Aspen, making it easy to assemble in Warren.
Merkle said the transfer makes sense because the Warren plant, which added a third shift more than a year ago, has had to idle the plant for more than four months this year because of sagging sales for its pickups. The 3,712 workers there could use the extra work from the Newark plant.
"Clearly, they could take the volume, because it has becomes so much smaller in Delaware," Merkle said.
Still, other analysts are doubtful the transfer of the Durango and Aspen would be smooth.
The Warren plant would have to reconfigure its paint and body shops -- the two most expensive sections of an auto plant -- to accommodate the Durango and Aspen. That could take a couple of years and cost Chrysler hundreds of millions of dollars.
The paint shop typically makes up 30 percent to 50 percent of an assembly plant's total cost, according to Ward's Auto World, an industry publication. A brand new paint shop can cost up to $500 million.
In addition to the costs associated with the move, Chrysler would have to deal with the cost of closing the plant, including possibly offering buyouts to workers.
Under its current United Auto Workers contract, which is up for negotiation next year, the company cannot shutter a plant before next September, when those discussions will reopen. Unlike General Motors or Ford, Chrysler hasn't openly announced any plant closings and buyout offers.
"What is the least expensive, best decision to make?" said David Cole, chairman of the Center of Automotive Research in Ann Arbor, Mich."It's a tough decision."
Cole said the fact that the Warren plant requires a lot of time and investment to handle Durango production works in favor of Newark. Chrysler historically has gotten along well with the local union and praised the quality of its work, he said. The company also has recently invested more than $180 million in the plant and would rather keep production here, he said.
"It would be a mistake for the community to sit on their hands and say, 'This is going to go somewhere else,'" Cole added. "This is not a foregone conclusion."
Analysts said there is still room for the state, labor and the local community to offer Chrysler incentives to stay in Newark.
Jim Fisher, president of UAW Local 1183, which represents most of the workers in Newark, did not return calls.
State officials and Delaware's congressional delegation said they are continuing to hold behind-the-scenes discussions with Chrysler to see what needs to be done to keep it here. State officials said they have not offered financial incentives to the automaker, but they are reviewing legislation including workers compensation and the gross receipts tax which would help lower Chrysler's operating costs in Delaware.
"Clearly, we have our work cut out for us," said Lt. Gov. John C. Carney Jr., who spoke about the Newark plant at a chamber breakfast last week. "This is a very serious situation and we are taking it seriously."
Chrysler is expected to unveil some of its restructuring plans in the first quarter. But analysts don't expect any important plant closing announcements until next fall. Until then, Chrysler will continue to weigh whether Newark is worth keeping.
"A lot really depends on cost," said Vildozo, the Global Insight analyst. "If some other state were to throw out a nice incentive package, then Newark is going to go."
No comments:
Post a Comment