Tuesday, October 21, 2008

Latest News On The GM Chrysler Merger-Detroit News

Chrysler sale could chill Michigan economy

Possible deal puts jobs, housing, taxes, image at risk
Louis Aguilar, Alisa Priddle and Catherine Jun / The Detroit News
Michigan, mired in a one-state recession for five years, now faces additional anxiety: the possible elimination of Chrysler LLC as a stand-alone company.

The loss of one of Detroit's Big Three in the state that gained its prominence and economic strength from the rise of the automobile would shake the state to its core, analysts said. It's the potential loss of as many as 30,000 Chrysler workers. That's on top of more than 100,000 job cuts from Detroit's automakers since 2005.

It's the loss of more auto factories, research and design centers, and office buildings, all of which provide vital tax revenue to already cash-strapped communities. It's another loss for the region's ailing housing, office and retail sectors. And it's not new for Chrysler, which has had three owners and seen significant change during the past decade.

There's nothing I can do about it," said one contract engineering worker Monday, who's been with the company for just six months. "I'm just praying that God helps me through all of this stuff."

Chrysler's owner, Cerberus Capital Management LP, is negotiating with General Motors Corp., though a deal is far from certain. Other scenarios are still in play, too, as Detroit's automakers try to weather one of the worst auto markets in decades.

On Monday, U.S. Sen. Carl Levin, D-Detroit, and others in the Michigan congressional delegation said they thought the federal government could -- and should -- play a role in helping the domestic auto industry survive. A Chrysler merger, Levin said, would be better than watching it, or any, of the Detroit automakers fail because it would do less harm to the industry and state.

"I wish I could say we could get used to all this immense change, but this is yet another situation that is very, very profound," said David Cole, chairman of the Center for Automotive Research in Ann Arbor.

Nonetheless, Cole, along with many others, said he thinks a merger is "going to happen sooner rather than later." Others point out the deal faces major obstacles, from getting financing to stiff regulatory hurdles and resistance from the United Auto Workers and Canadian Auto Workers unions.

But there is near-unanimous consensus that the dramatic loss of market share and now the tough national economy mean the domestic auto industry will get even smaller as fewer consumers buy cars and trucks.

Chrysler's work force could shrink by the tens of thousands, said Sean McAlinden, chief economist and vice president for research at the Center for Automotive Research.

More than half of Chrysler 67,000 workers -- about 37,000 -- are in Michigan, McAlinden said. In North America, if the company were to merge with GM or another automaker, 21,000 of Chrysler's 36,000 hourly workers could lose their jobs, as could 15,000 of its 17,000 salaried workers. The vast majority of Chrysler's white-collar work force is based in Metro Detroit.

McAlinden said a reduced Chrysler could essentially just need workers to operate the Jeep plants in Toledo and the minivan plant in Windsor.

Lucrative buyout offers don't appear to be on the horizon this time for UAW-protected hourly workers, McAlinden said.

"They don't care about the employees," said Carrie Ward, a Chrysler computer graphics designer from Harper Woods. The recently married 36-year-old is four months' pregnant, and with her husband working in construction, also an ailing industry, losing her job would be disastrous, she said.

If a deal is reached with GM, the automaker could not afford to take over all of Chrysler's facilities because it doesn't have enough money to buy out the younger Chrysler work force, McAlinden said.

The average age of a Chrysler worker is 44 to 45, compared with 48 at GM, which has shed 54,000 workers in three years. McAlinden said it costs $45,000 to get a worker to leave if he or she is eligible to retire, but younger Chrysler workers wouldn't qualify for retirement deals and would need a buyout, which costs up to $140,000. A few workers might retire, but it's hard to entice someone making $60,000 or $70,000 to retire and collect a $36,000 annual pension, McAlinden added.

That means plant closings.

Analyst Laurie Harbour-Felax, president of the Harbour-Felax Group, said that in the short term, most product lines would survive, but over the next product life cycle or two, anything but a Jeep or a minivan would be in jeopardy.

"No plant can be considered safe," Harbour-Felax said.

GM could use a past strategy of pitting plants against one another for future product to get better local contracts. The difference is that in this instance, "It ultimately could be a GM plant that closes," Harbour-Felax said.

Plant and office closings are massive hits to municipalities in many ways -- from tax dollars lost to houses having to be sold to other businesses having to possibly close, too. One auto job creates and supports from three to five other jobs in the community, economists say.

A shrunken Chrysler could mean it would move out of more than 1 million square feet of office space in Auburn Hills alone, said Geoff Hill, senior vice president of Grubb & Ellis, a commercial real estate firm.

Two years ago, when GM consolidated much of its white-collar work force, it opened up more than 3 million square feet of office space, Hill said.

The tax impact is staggering. Auburn Hills gets more than $3 million in taxes from Chrysler every year. Sterling Heights got $2.6 million in taxes from it last year, according to the city treasurer.

"Of course, we are very concerned," said Detroit City Councilman Kwame Kenyatta. "This area has been hit and hit hard. It can only hit us even harder."

Job insecurity was a main topic of concern Monday in interviews with Chrysler workers.

"They walked my supervisor out two weeks ago," said Robert Emeterio, 51, of Woodhaven, who paints experimental prototype cars for Chrysler.

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