Detroit plant: Mold for the future

David Coates / The Detroit News

DaimlerChrysler's Jefferson North plant in Detroit once turned the automaker's fortunes around with its Jeep Grand Cherokees.

Project X: Chrysler's secret comeback plan

Josee Valcourt / The Detroit News

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History of Jefferson North

January 1989: Then-Chrysler exec Bob Lutz reveals the Grand Cherokee concept at the Detroit auto show.
October 1991: The first pre-production Grand Cherokee is assembled at new $1 billion Jefferson North Assembly Plant in Detroit that employs 2,100. The 1.75-million-square-foot plant replaced the old Jefferson North South Assembly plant. Critics question Chrysler's decision to build in the inner city.
January 1992: Grand Cherokee is introduced at the 1992 North American International Auto Show in Detroit and is driven through a glass wall at into Cobo Center.
March 1994: Amid booming Jeep sales, Chrysler announces it will add a third shift at Jefferson North and spend $120 million to expand the plant.
April 1996: Chrysler produces 1.millionth Grand Cherokee at Jefferson North.
April 1997: Chrysler says it will spend $750 million to expand Jefferson North and build a new body and paint shop.
May 1998: Chrysler Corp. announced plans to merge with Daimler-Benz AG.
July 1998: Following a three-year, $750 million expansion process, production of all-new 1999 Jeep Grand Cherokee begins at Jefferson North. Plant now employs 4,300.
March 2001: Chrysler eliminates third shift at Jefferson North in companywide restructuring, cutting 1,000 jobs.
August 2004: Chrysler launches production of new 2005 Grand Cherokee and confirms it will build the larger Jeep Commander at Jefferson North. The plant, which now employs 2,700 workers, gets a multimillion dollar overhaul.
June 2006: Chrysler announces plans to build diesel-powered Grand Cherokee at Jefferson North.
January 2007: Detroit News reports that Jeep Commander may be killed after the 2009 model year due to disappointing sales.
Source: Detroit News research

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DETROIT -- The story of Chrysler's Jefferson North Assembly Plant mirrors the triumphs and travails of the Motor City itself.

Lee Iacocca reluctantly opened the $1 billion factory on Detroit's east side in 1992, despite warnings from experts who said it was folly to build an assembly plant in the inner city with an aging work force.

But Jefferson North and the red-hot Jeep Grand Cherokee it produced exceeded expectations, pumping billions of dollars and new life into a company again on the financial ropes after near-bankruptcy a decade earlier.

In recent years, intense new competition, high gas prices and the end of the SUV boom waylaid Jefferson North and the rest of Detroit's auto industry. With production falling, Jefferson North seems a likely target for closure as Chrysler prepares to announce a restructuring Feb. 14.

Instead, the last major auto assembly plant entirely within Detroit's city limits is poised for an unlikely resurgence. While it may face more work force and production cuts in the near term, Jefferson North is in line for a rebirth as a new Chrysler unfolds in the coming years.

A key piece of Chrysler's restructuring calls for the Auburn Hills automaker to jointly develop more vehicles with Mercedes-Benz, its sibling within Germany-based DaimlerChrysler AG, according to people familiar with the plan.

The next-generation Grand Cherokee will be built off a vehicle architecture designed for the Mercedes M-Class SUV and go into production about 2010 at Jefferson North, these people said.

And that's only the start. The next Dodge Durango SUV will be built off the same architecture -- code-named W164 -- and also will be made at Jefferson North, analysts say. Other vehicles such as a future version of the Chrysler Aspen and other Jeep vehicles based on W164 could be built at the Detroit factory as well. The Newark, Del., Chrysler plant that builds the Durango and Aspen is likely to close as part of the restructuring.

If Chrysler's plan comes to fruition, Jefferson North -- once dubbed "the plant that never should have been built" -- could get a multimillion dollar investment and play a huge role in yet another comeback in the boom and bust history of Chrysler.

"It's a pretty significant deal for the plant itself," said Jeff Schuster, global forecasting analyst for J.D. Power and Associates in Troy. "(DaimlerChrysler) putting faith in the plant by bringing in Mercedes says a lot. It's giving the plant a vote of confidence."

Plant fought from start

Jefferson North was almost killed on the drawing board in the late 1980s. The average age of potential workers at the plant was 51 and the prevailing wisdom was new auto plants should be built on undeveloped rural sites, not in poverty-stricken urban areas. Chrysler had just closed the old Jefferson assembly plant, a wood-floored relic that produced the poor-selling Dodge Omni and Plymouth Horizon.

"Iaccoca said he didn't think it was feasible building a plant in the city with a bunch of grandfathers building cars," said Aaron Taylor, the former president of United Auto Workers Local 7 from 1987 to 1992. Taylor now works for the UAW International as a service representative for Region 1. "We begged to differ."

After a year of negotiations, the UAW agreed to sharply reduce job classifications to make the plant cheaper to operate.

"I had to convince the membership to drop about 144 classifications down to about 10," Taylor said. "I told them that our survival hinges on this agreement and that if we could not get this, the plant would not be built."

That was only part of the challenge. More than 1,100 homes were bought and businesses relocated to make way for the factory.

Chrysler also wrangled a 12-year, 50-percent property tax break from the city of Detroit.

At the same time, Chrysler desperately needed a vehicle that could compete with the hugely popular Ford Explorer midsize SUV. Its answer was the Grand Cherokee, a more luxurious version of its successful Cherokee.

When the first Grand Cherokee rolled off the line at Jefferson North, everyone at Chrysler was holding their breath.

The plant opened with much fanfare. Taylor sat in the back seat as then-Chrysler president Bob Lutz, with former Detroit Mayor Coleman A. Young along for the ride, drove a Grand Cherokee from the factory onto Jefferson Avenue and to Cobo Center for the 1992 Detroit auto show. "It was the beginning of a new era," Taylor said.

Grand Cherokee: A big hit

The Grand Cherokee was a smash hit from Job 1. America embraced SUVs and the Jeep was a perfect blend of rugged looks and interior refinement.

"The product took the market by storm," said Frank Ewasyshyn, Chrysler's executive vice president of manufacturing. "There was nothing like it."

Chrysler expanded Jefferson North twice and added a third shift. More than 4,000 workers punched in daily in the late 1990s.

"We were making $13,000 to $15,000 a pop on every Grand Cherokee coming off the line," said Dennis Pawley, former Chrysler executive vice president of manufacturing.

The right factory with the right vehicle at the right time, Jefferson North was a once-in-a-generation success story.

The once-squalid area surrounding the massive white plant off Conner Avenue took off. New businesses and housing popped up around the factory.

"As I go through there, I don't recognize the area because of the revitalization and new mall and marts and businesses that have come up around that plant," Taylor said.

Fortunes changed fast

But when Jefferson North's fortunes changed, they changed in a hurry. A flurry of new competitors such as the Lexus RX 300 hit the market, chipping away at sales.

And Americans gradually started to cool on SUVs. In early 2001, Jefferson North cut its third shift and 1,000 workers.

In the past couple of years, the decline accelerated. Grand Cherokee sales fell 35 percent last year and another 23 percent in January, according to figures from Autodata Corp. Employment is down to 2,700 workers.

The seven-seater Jeep Commander, the first vehicle to be added to Jefferson North's line since the plant opened, was supposed to boost Jefferson North's output when it was introduced more than a year ago.

Instead, the newer Jeep cannibalized Grand Cherokee sales, which fell by 74,000 units last year, nearly equal to the Commander's 88,497 unit sales.

The Commander likely will be discontinued in 2009 because of disappointing sales, analysts say.

"The world is different now," said Tom Libby, senior director of industry analysis at J.D. Power's Power Information Network. "In the '90s, the midsize utility segment was flourishing -- the (Ford) Explorer, the Grand Cherokee -- that market was thriving. That has changed."

In truth, Jefferson North's success was never about work rules and factory efficiency, although those things certainly helped.

"It wasn't so much the plant," said Laurie Felax, president of Harbour-Felax Group in Royal Oak. "It was never their lowest cost plant. It wasn't their best in productivity and quality. It was the product that in the '90s was so hot."

And product is the only thing that will help Jefferson North rebound.

"Chrysler has to continue to put out products that customers want and that plant has to have flexible equipment to be able to produce other models," Felax said.

That's where Chrysler's new restructuring plan comes in.

A new Grand Cherokee that shares a basic architecture and certain parts with the Mercedes M-Class -- built in Alabama -- could be a breakthrough. It's almost certain to move upscale with a more car-like ride and handling.

A new Durango off the W164 architecture would reap similar benefits.

"The Dodge Durango will definitely share the next-generation platform with the Grand Cherokee," said J.D. Power's Schuster. Grand Rapids-based auto research firm IRN Inc. is also projecting that the vehicles will share platforms.

A union official, who spoke to The Detroit News on the condition of anonymity, confirmed that Dodge Durango production will begin at Jefferson North in 2009 and the next-generation Grand Cherokee will arrive in 2010.

Chrysler's Ewasyshyn declined comment on future vehicles.

Sharing is key

The key for Chrysler and Mercedes will be to share engineering and parts while making the vehicles separate and distinct.

"The synergies are there if you can break the brand barriers," Pawley said. "There really is no choice. It's absolutely the thing to do."

Since the 1998 merger between Daimler Benz and Chrysler Corp., it's been considered taboo to mingle Mercedes and Chrysler, for fear it would dilute the German luxury brand.

Immediately after the merger, the Grand Cherokee and the M-Class were assembled in the same plant in Graz, Austria, but there was no parts sharing and the vehicles were deliberately kept apart.

"They (Mercedes) insisted on keeping it separate from the M-Class on the final lines and final inspections," Pawley said. "That was pretty tough to swallow."

A company official, who spoke on the condition of anonymity, explained that specifications for the next-generation Grand Cherokee and Mercedes may share parts but will have different specifications and characteristics to maintain unique brand identities.

Analysts see the wisdom in more sharing. "It has to be a focus of DaimlerChrysler as a whole," said Chuck Moore, managing director of Conway, MacKenzie & Dunleavy, a restructuring firm based in Birmingham. "The only way to compete effectively as a global (automaker) right now is for that sharing. That is really the wave of the future."

Art Spinella, president of CNW Marketing Research, an automotive research firm in Oregon, said the next Grand Cherokee needs to be a vast improvement over the current version.

"The Grand Cherokee is a lost soul, which is unfortunate because it was the linchpin product besides the Wrangler for Jeep," Spinella said. "It should have been a more upscale product. It should have been a competitor to the Range Rover, but Chrysler never did that."

He doesn't see risk in cooperation between luxury Mercedes and Chrysler's Jeep, the quintessential American off-road brand.

"Most consumers don't care if the architecture is similar or the same," Spinella said.

And such sharing is not unprecedented. Consider Bentley and Audi, both part of Volkswagen AG. "They have an Audi engine and Bentley customers don't have a problem," said Juergen Pieper, an auto analyst with Metzler Bank. "Bentley has an even higher luxury image than Mercedes."

For the workers at Jefferson North, who have been through its highs and lows, any debate about parts sharing takes a back seat to worries about what the plant's next chapter will be.

"We try to think positive," said Robert Ledgerwood, a nine-year veteran at Jefferson North. "Hopefully, Chrysler can continue to make some quality vehicles that people want to buy. That's the most important thing."