Chrysler Closing St. Louis Plant, Denies Bankruptcy Rumors

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Researched by Industrial Info Resources (Sugar Land, Texas)--So far, 2008 has not been kind to the automotive industry in the United States. Continually rising oil and gas prices have forced automakers to rethink their strategies regarding production and sales, as well as expansion in North America. In the case of American automakers, all of which are deeply involved in restructuring programs, the recent turmoil within the industry has been doubly troubling as the timing could not be worse. Layoffs, buy-outs, early retirement offers and plant closings have been the name of the game this year, and there are no signs that these activities will end in the near future. The most recent closing was just announced by Chrysler LLC (Auburn Hills, Michigan) and involves one of its St. Louis, Missouri, assembly plants.

Chrysler will close its St. Louis South plant, which currently assembles minivans, on October 31, 2008. The St. Louis North plant, which assembles pickup trucks, will not come away unscathed and will cut a shift from September 2, 2008, leaving only a single shift in operation. In total, the cuts in St. Louis will affect 2,400 jobs. While Chrysler has not stated that the St. Louis minivan facility will be closed permanently, they have said that the shuttering of the facility is for an indefinite period of time, which in the current automotive climate is essentially a death sentence.

At the same time, rumors, vigorously denied by Chrysler, have been leaking out of Europe that the auto-maker would be filing for bankruptcy protection in the near future. The rumors began after Chrysler decided to exercise a $2 billion line of credit from their parent company, Cerberus Capital Management LP (New York, New York), and Daimler AG (NYSE:DAI) (Germany), their former owner. Chrysler had to borrow the money before August 3, 2008 under the terms of purchase made when Cerberus bought an 80% stake in the floundering automaker from Daimler in 2007.

Due to the record high price of oil and the resulting high gas prices, the sales of pickup trucks have been slumping across the board. There had been speculation that the St. Louis truck plant would be on the chopping block as well at some point in the near future, however Chrysler executives are pinning their hopes on the newly revamped 2009 model of the Dodge Ram pickup, which will be in showrooms in September or October this year. The automaker is banking their sales projections on the core truck markets with this new model, hoping that the changes they have initiated will make the vehicle more attractive than the flagship trucks of its competitors, the Chevrolet Silverado manufactured by General Motors Corporation (NYSE:GM) (Detroit, MI) and the F-150 manufactured by Ford Motor Corporation (NYSE:F) (Dearborn, MI).

The new Ram will feature a new high-quality interior with additional storage space, a more powerful engine and a new suspension. The new four-wheel-drive version will sport a 390-horsepower 5.7-liter Hemi V-8 engine that gets 14 miles per gallon in the city and 18 miles per gallon on the highway, which executives feel is very competitive in the market. In addition, the new truck will have an 80-pound weight reduction that alone accounts for an additional one mile per gallon in fuel efficiency over the previous model, as well as much better aerodynamics. The truck will be available in both diesel and hybrid versions by 2010.

The bottom line for the industry is that all automakers, both foreign and domestic, are being forced to make very rapid adjustments to their strategies in North America. While American automakers have been forced to close production facilities and limit the number of employees, the foreign automakers are continuing North American expansion, albeit at a slower pace than originally planned. All automakers are making rapid adjustments to their production schedules and goals as they try and reduce truck and SUV production while boosting fuel efficient car and hybrid production to meet the dramatic shift in consumer demand. The remainder of 2008 will be an interesting time for automobile manufacturers and consumers as these changes begin to bear fruit.

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