October 30, 2008

Report: GM-Chrysler merger likely to decimate Chrysler lineup, trigger more layoffs

The fallout from a merger between General Motors and Chrysler LLC will lead to the closure of many as half of Chrysler's factories and the elimination of nearly all Chrysler models, according to a report released by consulting firm Grant Thornton LLP.

The report comes a day after General Motors canceled a $2 billion program to replace its trio of aging full-size SUVs and Chrysler culled its two full-size hybrid SUVs after only three months of production.

Merger and more layoffs seem inevitable
Despite the gloomy forecast, a GM / Chrysler merger seems highly likely at this point. Reuters reports that GM and Chrysler have resolved the major issues in a merger agreement and that the final form of a deal will depend on financing and federal support.

The New York Times reports that the Department of Energy was working to release $5 billion in government-backed low-interest loans to GM so it could complete a deal with Cerberus Capital Management, the majority shareholder of Chrysler LLC. The $5 billion in loans would come directly from a $25 billion pool of funds approved last month by Congress in an effort help Detroit retool as a maker of more fuel-efficient cars.

And while a merger may save the two embattled automakers, it most certainly will not save all their employees.

Speaking with Automotive News, Kimberly Rodriguez, principal of Grant Thornton's automotive practice said that a deal also could result in a loss of 100,000 to 200,000 jobs at the two automakers, their suppliers and other industry shareholders.

According to the report, the majority of job cuts would come as most of Chrysler model lineup is phased out. Chrysler's sedans have failed to outsell their domestic competitors and both the Dodge and Jeep division are heavily invested in SUVs and light trucks.

Massive consolidation of models, factories
Currently, Chrysler operates 14 factories, with two of them scheduled to close at year's end. During the summer, Chrysler has offered its Viper model lineup for sale, along with the Detroit plant where they are made.

In the report, Grant Thornton says that four more factories could close in the aftermath of a merger with GM. Those on the hit list produce the Chrysler Sebring and the Dodge Avenger in Michigan, the Jeep Liberty and Dodge Nitro in Toledo, Ohio, the Dodge Ram in St.Louis, Mo. and Dodge's heavy-duty truck plant in Saltillo, Mexico.

As production of these models wound down, a second wave of layoffs would then hit the third-party suppliers that provide transmissions, windows, dashboard assemblies — all of the primary components unique to each Chrysler, Dodge and Jeep model.

All told, the lost work to these suppliers would put hundreds of companies at risk. Up to 50,000 additional non-Chrysler jobs could be lost if Chrysler were to close the plants Grant Thornton expects.

Timing is critical; contraction is inevitable
If a GM-Chrysler merger is completed, it may take years to phase out all of the models listed in the Grant Thornton report. Some platforms may be eliminated through attrition; left in production until they cease to turn a profit. Some plants could be closed as early as the holiday shutdown and others could take years to close, said Rodriguez.

It is, in your humble author's opinion, a "damned if you do, if you don't" scenario.

Neither GM or Chrysler can survive alone in this market. While Chrysler has more cash on its books, they are in the worst position to capitalize on high gas prices. Worse yet, they lack the resources to improve their CAFE rating without aid. And while GM has a more fuel-efficient lineup, they are burning through their cash on hand at an alarming rate.

If either fails, far more jobs could be lost than those through the merger of these two former titans.

For more punditry on this unholy mess:
NYT: Views on a GM-Chrysler merger


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