Monday, October 20, 2008

Michigan Sweats GM-Chrysler Talks--Massive Cuts coming!

Michigan Sweats GM-Chrysler Talks
Thousands of Jobs Are Vulnerable in a State Already Battered by Industry Layoffs, Home Foreclosures

Auburn Hills, Mich.

A merger of General Motors Corp. and Chrysler LLC would land a heavy economic blow on Michigan, a state already battered by waves of home foreclosures and the loss of tens of thousands of auto-industry jobs over the last few years.

GM is negotiating a potential deal with Chrysler's majority owner, Cerberus Capital Management LP, hoping it can reap billions of dollars in cost savings by shutting down overlapping operations. Analysts estimate more than half of Chrysler's 66,000 employees would lose their jobs in a merger. Thousands more would be affected at GM and at suppliers and service companies that rely on work with Chrysler.

While GM and Cerberus have accelerated the talks in the past week, securing the financing for a deal remains a major hurdle and it is far from certain that a merger will come to pass. Still, Motor City and the entire state have little choice but to think ahead about the possible ripple effects.

Michigan has borne the brunt of the auto industry's massive payroll cuts. Since 2005, GM, Chrysler and Ford Motor Co. have cut more than 100,000 jobs across the U.S., pushing the Detroit area into one of the highest foreclosure rates in the country. The economy has turned so dire that the U.S. State Department recently cut back on the placement of Iraqi refugees in Michigan.

Michigan's unemployment rate in August was 8.9%, the highest in the U.S., and economists suspect it could hit double digits next year even without a GM-Chrysler deal. Michigan last month had 13,605 foreclosure filings, fourth highest in the country.

Analysts see the potential for job cuts and closures at several Chrysler facilities in Michigan that could be replaced by GM operations. Chrysler's Sterling Heights car plant makes models that sell badly and compete against some of GM's top models. GM might not need a GM truck plant in Warren if it tries to increase production in its own plants. Chrysler's Chelsea testing facility could be combined with GM's nearby proving grounds in Milford. Locations outside of Michigan could also be at risk, including a truck plant in St. Louis; a car plant in Belvedere, Ill.; and stamping and assembly plants in Ohio.
Chrysler declined to comment about the merger talks or possible job cuts or plant closures that could follow a deal with GM.

At Chrysler's headquarters here, where 10,000 people are employed, several workers said the mood is grim. "Nobody's doing much work," lamented an engineer. "We all figure we're just going to get marched out of here when the deal is done. I don't think GM thinks there's much of Chrysler worth keeping."

Any deal could run into union opposition. United Auto Workers President Ron Gettelfinger has said he is against a merger between Detroit auto makers. Canadian Auto Workers President Ken Lewenza agreed. "There are no pros, only cons" to a tie-up between GM and Chrysler, he said last week. Both unions have contracts with GM and Chrysler that prevent the companies from closing plants in the near term.

Sean McAlinden, chief economist and vice president for research at the nonprofit Center for Automotive Research in Ann Arbor, Mich., said the real question would be how quickly the cuts would happen for those represented by the UAW, including white-collar workers. The center had estimated that the U.S. auto industry will have lost almost 150,000 jobs between 2005 and 2011, before taking any merger into account.

"The average age of the Chrysler hourly worker is like 42, 43 -- about four or five years younger than those at GM. And they don't want to leave anymore," even with the enticement of a substantial buyout, Mr. McAlinden said. "That's one barrier to a merger even happening."

In the city of Auburn Hills, 25 miles north of Detroit, anxiety runs high. In early 1996, Chrysler's world headquarters moved into a blue-glass skyscraper towering above Interstate 75 -- a giant "Pentastar" logo adorning its top. The well-to-do city relies heavily on its business tax base, with about 60 corporate offices in a city with less than 20,000 residents.

People have said "it would never happen," said Michelle Hornberger, chief strategy officer for Crittenton Hospital Medical Center and a board member at the Auburn Hills Chamber of Commerce. "They just couldn't see the benefit and are shaking their heads trying to figure out the value in the merger."

Chrysler, arguably the city's most important corporate citizen, sold almost 2.7 million cars and trucks last year. It is expected to provide Auburn Hills about $4 million in tax revenue this year, according to city officials. But Chrysler's contributions extend beyond the tax rolls. Last year the auto maker's foundation doled out more than $20 million in charitable donations across the region.

Dean Mohan Tanniru, at Oakland University's school of business administration, said Chrysler provided $35,000 this year to help support a teleconferencing effort to link business students in Auburn Hills to those in China and India. "Surely we're interested in the immediate impact," Mr. Tanniru said. "But we also have to think in terms of competitiveness."

Mike and Kathy Jansen, who have lived in Auburn Hills since 1974, said they worry about what a merger would mean if it was followed by job cuts. Mr. Jansen has concerns about what a jump in the city's jobless rate might do for real-estate values and the rate of foreclosures.

Mr. Jansen, who had worked part time for the city's fire department, remembered fondly when he visited the Chrysler complex as it was sprouting on old farmland almost 15 years ago. "I just hope that we don't have empty buildings up there soon," he said.
Report by The Wall Street Journal

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