More Michigan bad news: Chrysler cuts 12,000 slicing 1 in 3 jobs

By Rick Haglund
Chronicle Detroit Bureau

DETROIT — Michigan’s troubled economy is taking another unwelcome hit as Chrysler LLC slashes as many as 12,100 jobs and eliminates four vehicle models.

The Auburn Hills-based automaker said Thursday that between 8,500 and 10,000 hourly jobs, 1,000 salaried jobs and about 1,100 contract positions would be cut through 2008.

“This is a shockingly big announcement. It’s not a good sign for Michigan,” said Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor.

McAlinden said Michigan will lose 5,000 hourly jobs and most of the 2,000 salaried and contract jobs in Chrysler’s latest downsizing.

Michigan has lost 285,000 net jobs since 2000, mainly because of the shrinking auto industry. The state has the highest unemployment rate in the nation at 7.5 percent.

“It’s not inconceivable that you could have a whole decade of (net) job losses in the state,” said University of Michigan economist Don Grimes.

Chrysler said it will stop building the Dodge Magnum, the convertible version of the Chrysler PT Cruiser, the Chrysler Pacifica and the Chrysler Crossfire by next year. None of those vehicles is built in Michigan.

Along with the discontinued models, the automaker said it is eliminating production shifts at five assembly plants, including second shifts at the Jefferson North Assembly Plant in Detroit and the Sterling Heights Assembly Plant. Shifts at both plants will be eliminated in the first quarter of 2008.

Each assembly plant shift employs roughly 1,000 workers. Chrysler said it expects to restore a second shift at Jefferson North in 2010 when it introduces two new sport-utility vehicles.

Restoring the second shift is important, McAlinden said, because assembly plants that operate on only one shift don’t survive.

Here’s one way to describe the depth of the problems at Chrysler LLC: close to one in three.

That’s roughly the chances a Chrysler worker has seen his or her job targeted for elimination in the last nine months, between the 12,100 reductions of hourly, salaried and contract workers announced Thursday and the 13,000 cuts launched in February.

Even by the standards of Detroit’s troubled auto industry, it’s a high toll. And with half of the 10,000 hourly jobs targeted in Michigan, it will deal yet another punch to a staggering state economy. The cuts will bring Chrysler’s total employment down to as low as 57,300 by 2009, from its level of 82,400 at the end of 2006. Detroit’s auto industry as a whole has announced about 145,000 job cuts in the United States and Canada since 2005, and the ripple effect has pushed Michigan’s unemployment rate to the highest in the nation at 7.5% in September.

Industry observers say new owner Cerberus Capital Management and Chrysler’s workforce have little choice but to retrench in the face of a slowing economy and product missteps if the remaining two out of three workers want hope for the future.

Chrysler “can survive, and they can make money,” said Gerald Meyers, former chairman of American Motors. “But they have to cut themselves down to size and align themselves with someone else around the world.”

In an e-mail to employees Thursday, Chrysler Chairman and Chief Executive Officer Bob Nardelli said the automaker had underestimated how fast the U.S. economy would weaken after the February plan was unveiled, because of the meltdown of the housing market and spiking oil prices. The company has lowered its estimates of industry sales to 16 million this year, down from 17.2 million, and expects a similar pace for much of 2008.

“We must position Chrysler to return to profitability next year without pushing unprofitable volumes of product through our plants and into our dealers’ showrooms or fleet,” Nardelli said in the e-mail, a copy of which was obtained by the Free Press.

“This would only lead to a downward spiral of higher incentives, weaker brands, lower residual values and poor relationships with our dealers.”

Ever since the merger of Daimler-Benz AG and Chrysler Corp. in 1998, Chrysler has struggled to find a stable niche in the U.S. auto industry, as waves of managers arrived to cut back ambitious yet unprofitable plans for growth, only to replace them with new ones a few years later.

The Auburn Hills automaker has wrestled for much of the last year to limit its incentives and sprawling fields of unsold vehicles as foreign automakers gained more ground in a declining U.S. market. Sales results released Thursday showed Chrysler’s U.S. market share shrank to 11.8% in October, down from 13.1% a year earlier, as the company sold 3.5% fewer vehicles through October than a year earlier.

Some workers said they weren’t surprised by the moves, even though they came a few days after the UAW lobbied hard for approval of a new contract, in part by touting its job guarantees. UAW contracts allow job cuts on slow sales.

At Jefferson North Assembly, where about 1,000 jobs are to be cut and the Detroit plant taken down to a single shift, high fuel prices have cut sharply into demand for the Jeep Grand Cherokee and Jeep Commander workers build there. Given the sales results, rumors had circulated for months about a shift cut.

“We knew there was an end of the road somewhere,” said Eddie Gordish, a skilled-trades worker at Jefferson North.

But Myers said the cuts could make workers at Ford Motor Co., who are still negotiating a new contract, look more skeptically at any promise of job security from the company and the union.

“There will be a level of distrust that will be introduced into the Ford negotiations that wasn’t there before,” he said.

As expected, the cuts made Thursday run throughout the company’s factories. In addition to Jefferson North, shifts are to disappear at three other assembly plants, including Sterling Heights, eliminating about 4,700 workers. The remainder of the hourly jobs will be shed from other plants, including stamping and engine plants, with 4,500 of the cuts yet to be assigned.

Most of the reductions are to take place in the first half of next year.

The automaker also said it is culling four slow-selling models from its lineup over the 2008 model year: the Chrysler Pacifica and Crossfire, the PT Cruiser convertible and the Dodge Magnum. It also calls for Chrysler to shed about 2,100 salaried and contract jobs before the end of the year.

Chrysler spokesman Mike Aberlich said hourly workers would be offered buyouts and early retirements under the company’s agreements with the UAW, which provide up to 48 weeks of unemployment assistance.

The moves had “nothing to do with the contract,” Aberlich said. “When you make these sort of calls, you have to move as quickly as you can.”

The UAW had no comment on the changes. Canadian Auto Workers President Basil (Buzz) Hargrove called the decision “horrible, horrible news” that would create ripple effects hurting thousands of additional jobs in Canada beyond Chrysler.

U.S. Rep. Candace Miller, R-Harrison Township, called the move “a shame,” while Illinois’ senators called on the Department of Labor to help displaced workers.

But with the UAW contract and the job cuts, the outlines of Cerberus’ plans for the automaker over the next few years have become clearer. Chrysler said Thursday that it has committed to spending $15 billion on U.S. products, plants and engineering through 2011, and noted it would launch four vehicles next year, including two hybrid SUVs.

While Chrysler has marked a few of its factories for extinction, such as the Newark, Del., plant that builds the Dodge Durango and Chrysler Aspen, it also has pledged to keep its remaining factories open through the life of the UAW contract. The company said Thursday that it would restore a shift at Jefferson North in 2010 when it launches the next generation of its SUVs.

Experts said the cuts show Cerberus is willing to move quickly, especially to fix Chrysler’s cash flow. Chrysler needs the cash to fund new products and the $8.8-billion pledge to the UAW for retiree health care.

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