Chrysler turnaround has experts scratching heads

February 20, 2007 |

BY TIM HIGGINS | FREE PRESS BUSINESS WRITER - - The obits were already written for Chrysler's St. Louis truck plant.

Analysts were convinced Chrysler Group would ax the St. Louis North Assembly Plant and maybe even a stamping plant in Ohio, as part of the Auburn Hills-based automaker's plan to return to profitability.

Those were just two areas in which the experts' predictions turned out to be wrong. Analysts give qualified praise to the company's turnaround plan, which was largely overshadowed by the possibility of a Chrysler sale when the plan was announced last week.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, sounded like many analysts when he said he thinks the plan could return Chrysler Group to profitability. But he cautioned: "The kind of profitability it needs -- that's another question."

Details of the plan have taken a backseat to talk of Chrysler being sold or spun off, something DaimlerChrysler CEO Dieter Zetsche refused to rule out as an option.

The uncertainty of the company's future puts greater pressure on Chrysler to quickly move forward with its plan, said Joe Phillippi, a principal at AutoTrends Consulting. If Chrysler CEO Tom LaSorda is not a part of the sales talks, "then he's got to go full-steam ahead," he said.

The 13,000 hourly and salaried job cuts included in the plan were about the expected number. But fewer plants were closed than many expected, and the ones that lost jobs surprised some of the industry watchers -- though they now say they can see the logic in the plan.

Tough ones to figure

Consider that pickup plant.

St. Louis North is one of three plants that assemble pickups, and the only one that doesn't make them in two different sizes. That doesn't seem to fit in with a company that must dramatically reduce its capacity for making pickups as the competition gets stronger and consumers turn to more fuel-efficient vehicles, industry watchers argued.

But instead of reducing truck capacity by eliminating a plant, the company announced it was cutting a shift at the Warren Truck Plant, which makes both the full-size Dodge Ram and compact Dodge Dakota.

Also surprising many analysts was the company's decision to eliminate a shift at its St. Louis South minivan plant and reduce the number of people at its Windsor assembly plant, where minivans are also made -- just as the company gears up to launch its newly redesigned Dodge Grand Caravan and Chrysler Town & Country minivans.

"For the life of me, I can't figure that one out," Erich Merkle, director of forecasting for IRN Inc., said of the minivan shift reduction, noting the new minivan should sell well and the company has committed to making a minivan for Volkswagen and a version called the Chrysler Voyager for Europe.

This was Chrysler's second major turnaround plan in less than a decade. The last one, unveiled in 2001, led to 40,000 job cuts and the sale or closure of 16 plants.

The new plan is smaller in scale but aims to reduce annual capacity by 400,000 vehicles and eliminate 13,000 jobs over three years.

The company wants to shift away from being heavily reliant on pickups and SUVs -- vehicles it struggled to sell last year.

Not surprising to outside observers was the announcement that the Newark, Del., assembly plant -- where Dodge Durango SUVs are made -- would be idled in 2009.

The closing of Newark may have helped the St. Louis truck plant stay open. "By getting rid of the large SUV plant, if they want to stay in that segment they have to build the vehicle somewhere. They have two options then: North St. Louis or Warren," said analyst Jim Hall, vice president for industry analysis at the Southfield office of consultant AutoPacific.

In addition to St. Louis, Chrysler also makes minivans at its Windsor plant, and the company has spent $508 million to make the plant more efficient.

The Windsor plant also makes the Chrysler Pacifica, which was supposed to be replaced in 2009 by a new model, but that plan has reportedly been scrapped. If true, that could create unused capacity at the plant.

"The question is ... do you suddenly have excess minivan capacity? And the answer is very likely," analyst Hall said.

Close to home

Michigan will feel a good portion of the job cuts: About 5,300 jobs will be eliminated, including 1,000 at the Warren plant.

Workers at the Mack Engine complex -- bruised by 250 layoffs in January -- worried that one of their two engine plants would fall under the ax. It didn't, though it will see a jobs reduction of 200.

Analysts had said the company's Twinsburg, Ohio, Stamping Plant looked vulnerable for closure because of industry trends of moving away from regional stamping plants to facilities located closer to assembly plants.

Again, that didn't happen, though 110 jobs will be cut there.