DETROIT, Michigan : In a city struggling to deal with the slow disintegration of the iconic General Motors and Ford, Chrysler was the shining star whose bold designs could beat out the Asian competition.
That star fell to earth last week with the announcement of major production cuts amid a sharp drop in demand for the trucks, minivans and sport utility vehicles that accounted for 71 percent of its unit sales.
While the Chrysler Group’s chief executive said the plant closings would be temporary and that sales were expected to pick up in the fourth quarter, Tom LaSorda’s caution that the group was considering all options in the face of a forecasted 1.5 billion dollar loss has many here worried about their jobs.
More than 60,000 high-paying union jobs at GM and Ford will be lost as the two giants undergo massive restructuring plans in the face of a steady loss of market share that accelerated as consumers shied away from the highly profitable but gasoline guzzling trucks and SUVs that the Big Three relied upon.
With Toyota openly attacking General Motor’s ranking as the world’s largest automaker and expected to soon overtake Ford as the second biggest seller in the United States, Chrysler’s missteps have struck deep at the pride of the Motor City.
And the consequences will be felt across the United States where an estimated 13.3 million jobs are dependent upon the automotive industry.
The production cuts announced recently have put enormous pressure on companies that supply parts to American carmakers, Himanshu Patel, an analyst with J.P. Morgan, said during a conference call Friday.
Two Detroit-area suppliers, Lear Corp. and BorgWarner, announced last week they were cutting the financial guidance for the balance because of the production cuts. BorgWarner also announced plans to lay off 6 percent of its staff worldwide in response to the changes.
A third major supplier, Dura Automotive Systems, which posted sales of more than two billion dollars in 2005, disclosed it had been warned it would be dropped from NASDAQ’s listings because its shares were trading for less than one dollar. A recent report from Lehman Brother’s indicated Dura was on the verge of seeking bankruptcy protection.
Ford - which had until recently been seen to be in better shape than General Motors - had its ratings cut deeper into junk status by both Moody’s and Standard and Poor’s last week and is now considered to be equally - or perhaps even more - at risk.
“We view the automakers’ accelerated cost-cutting initiatives as a necessary pre-condition to any sustained improvements in credit quality,” Standard &Poor’s credit analyst Robert Schulz said.
“But a successful, multi-year turnaround on the revenue and product side will also be required. In the meantime, performance in North America will remain weak for the foreseeable future.”
Meanwhile, Toyota continues to push out new vehicles into segments long dominated by the Big Three.
Brian Smith, Toyota’s corporate manager for truck operations, said Monday that the Japanese auto giant expects to sell about 200,000 new Tundra pickup trucks next year. So far this year, Toyota has sold only 79,000 Tundras, but its executives believe the new truck it is getting ready to launch in February is coming to showrooms with new designs, new features and a new, more powerful engine.
JP Morgan’s Patel said during conference call with investors that new car-based crossover vehicles coming this fall will help American automakers. However, they are coming to showrooms with a lot new features and price tags that are smaller than those of the old sport utility vehicles.
“It’s an open ended questions about how profitable these vehicles (crossovers,) really are,” Patel said.
LaSorda said DaimlerChrysler AG planned to continue to press the United Auto Workers union for concessions, particularly on health care benefits, which have become increasingly expensive. So far, though, the union has turned down the company’s plea.
“No one likes to hear about your company losing money,” said Dale Hunt, president of UAW Local 7 at Chrysler’s Jefferson North assembly plant in Detroit which will be on temporary layoff for the next month.
Hunt, however, said he other union leaders at Chrysler plants remain opposed to granting the company the kind of health-care concessions the union granted GM and Ford last year.
“I’m still against concessions,” he said after the production cuts were announced.
- AFP /ls
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