Chrysler to lay off 2,400 in Fenton as it closes minivan plant, reduces pickup plant ops

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ST. LOUIS POST-DISPATCH

07/01/2008

The St. Louis area once again has fallen victim to Chrysler LLC's restructuring efforts. On Monday, the automaker announced it would shutter its minivan assembly plant in Fenton at the end of October and eliminate a production shift at the adjacent pickup assembly plant the day after Labor Day.

About 2,400 local Chrysler workers in Fenton will be laid off temporarily. This figure doesn't include expected layoffs at other companies that supply auto parts and services to the Chrysler plants.

The reduced production is a result of the lagging sales of pickups and minivans, which have fallen further than Chrysler projected, Tom LaSorda, Chrysler's president and vice chairman, said Monday on a conference call.

Minivan sales in the U.S. fell 23 percent through May, while pickup sales fell 27 percent, according to data from Automotive News. Chrysler's total U.S. sales have fallen 14 percent through May.

"These are decisions we have to make," LaSorda said. "They're not done lightly."

Chrysler's restructuring announcement Monday only affected the two local plants. However, The Associated Press reported last week that the automaker extended summer shutdowns at three other assembly plants.

At the south plant, where about 1,500 people work to assemble minivans, production will end on Oct. 31. Those workers assemble the Dodge Grand Caravan, Dodge Caravan cargo van and an export version of the Chrysler Town & Country minivan.

Chrysler says minivan demand has plummeted to the point where it can be met by production at only a single facility. It has another minivan plant in Windsor, Ontario.

In reference to the south plant's future, LaSorda said, "We have no intent to run this plant. We'll likely be fully closed."

At the north plant, about 900 people will be laid off on Sept. 2 when the second shift is eliminated. That plant assembles the Dodge Ram pickup.

Workers at each plant got the news in afternoon meetings. At the pickup plant, workers were saddened by the announcement, said Jerry Dennison, president of United Auto Workers union Local 136, which represents north plant workers.

"We had hopes it would not happen," Dennison said. "But I think everyone can see the state of the nation."

Under the existing labor contract, laid-off Chrysler workers get supplemental unemployment benefits. Once those benefits are exhausted, they'll return to the company's payroll, receiving most of their pay.

However, the Detroit News said that affected Fenton employees will be offered buyout and early-retirement packages.

In recent years, surging fuel prices, changing consumer tastes and growing number of competing vehicles have hurt demand for traditional minivans.

Slumping minivan demand already spurred Chrysler to eliminate one of the two production shifts at the south plant in January. Prior to that cut, about 2,900 people worked at the plant.

Still, many hoped the south plant could stave off closure, particularly since the automaker invested heavily in the facility. The bulk of Chrysler's $500 million investment in local operations went toward converting the south plant last year into a flexible manufacturing facility, capable of building multiple vehicles on a single assembly line.

When the retooled south plant opened in September, a Chrysler executive told the Post-Dispatch that the new facility would allow the company and its employees to work together in securing jobs for future generations in Fenton.

Less than a year later, Chrysler executives were explaining why it had to shutter the revamped facility.

With minivan demand continuing to fall, Chrysler chose to close the Fenton plant rather than hurt the operating efficiency at the Windsor plant, LaSorda said.

"When you look and one (plant) is running on three shifts and one is running on one, it left us no choice" but to keep running the plant with three shifts, he said.

Industry analysts say a plant typically loses money when it runs a single shift.

LaSorda declined to comment on what Chrysler would do with the south plant, only saying that a decision would be made in the future.

However, it appears unlikely minivans will ever be built again at the south plant, said Erich Merkle, vice president of auto industry forecasting for the consulting company IRN Inc. in Grand Rapids, Mich.

Merkle said consumer demand for minivans would have to necessitate at least two shifts, not just one, for Chrysler to reopen the plant.

"They'll probably have sufficient capacity in Windsor," Merkle said. "When (an automaker) makes a decision to close a plant, it's pretty firm."

Chrysler could build a different vehicle at the south plant, but Merkle said he is unsure what it might assemble there. He is one of several analysts who has criticized Chrysler for having a near-empty portfolio of new products planned for 2009 and 2010.

With Monday's announcement, Fenton's pickup plant is left on shaky ground. Chrysler also assembles Ram pickups in Warren, Mich., and Saltillo, Mexico.

Again, efficiency was the reason Chrysler chose to reduce production at the north plant.

The Warren plant assembles about 65 units per hour, while the north plant assembles about 41 per hour, LaSorda said. The Saltillo plant assembles larger heavy-duty pickups not built locally.

Still, consumer demand isn't as bad as it seems in the pickup market, said Art Spinella, president of CNW Marketing Research Inc., a consumer research firm in Bandon, Ore.

The recent dip in pickup sales reflects the reduced number of image-conscious pickup buyers, Spinella said. This year's sales have remained steady among core pickup buyers, who use the vehicle for towing, construction and other functions.

When the housing market recovers, he expects overall pickup sales to stabilize, Spinella said.

"For the most part that market is coming back," he said. "It always does, and there's no reason to assume it won't again. From that standpoint there's probably going to be enough volume to bring St. Louis back."

That means good news for some. But others, such as Ivan Reed, are left only to hope.

Reed, 39, has worked on the south plant's assembly line for 14 years. He doesn't have a backup plan, but Reed said he'd consider transferring to another Chrysler facility to help support his wife and 14-year-old daughter.

"It is hard for those of us who are not really educated," Reed said. "Finding some sort of similar labor work is really our only option."

The cuts at Fenton come as Chrysler continues its aggressive campaign to cut costs.

Chrysler had an operating loss of about $300 million in the first four months of the year, less than projected by owner Cerberus Capital Management LP, according to documents obtained by Bloomberg News.

Still, questions linger about the third-largest U.S. automaker's health. On June 26, speculation in European financial markets forced Chrysler to say it wasn't considering bankruptcy.

Bloomberg News and Riddhi Trivedi-St. Clair of the Post-Dispatch contributed to this report.

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Last Updated on Monday, 09 February 2009 19:29