Chrysler LLC's latest restructuring blow is landing in St. Louis, and the impact will be felt by auto parts giant Magna International Inc.
Whacked by the plunge in pickup truck and sport utility vehicle sales that is causing the biggest crisis Detroit has faced in a generation, Chrysler will trim production of pickup trucks and close a Missouri minivan plant indefinitely as of Oct. 31.
The cutbacks, which will drop one of two shifts producing the Dodge Ram pickup and eliminate 2,400 jobs, manages to spare Chrysler's minivan plant in Windsor, Ont., which will continue to operate on three shifts.
It is, however, another blow to Magna International, which has a plant in Missouri where more than 200 people build seats for the Dodge Caravan and Chrysler Town and Country minivans. Magna accounts for about $1,900 (U.S.) worth of parts in the assembly of every Chrysler minivan.
The Chrysler move is the latest cutback by the Detroit Three auto makers, which have been battered by the U.S. housing crisis and surging gas prices that have caused sales of profitable pickups and SUVs to collapse, and sent demand for smaller cars and crossover utility vehicles soaring.
"The auto industry is going through a period of unprecedented change," Chrysler said in a statement yesterday announcing the cuts.
The Chrysler announcement came just days after the company was forced last week to deny that it was heading into bankruptcy protection. Tom LaSorda, one of Chrysler's two presidents, shot down talk yesterday that its owners Cerberus Capital Management LP plans to break the auto maker up and sell off the pieces.
"All hogwash," Mr. LaSorda said. "Absolutely not being considered at all. I don't want to even entertain those questions."
Bloomberg News Service reported yesterday from a Cerberus presentation that Chrysler posted an operating loss of $300-million in the first four months of 2008, a better performance than an expected loss of $700-million.
"We continue to meet or exceed our financial targets," Mr. LaSorda said. His co-president Jim Press added that if the company wants to continue to do so, it must respond to the market.
In minivans, "we have too much capacity," Mr. LaSorda said. Caravan sales plunged 35 per cent in the first five months of the year in the U.S. while Town and Country sales dropped 11 per cent.
Chrysler has reduced minivan output to three shifts from five in 14 months, noted Ken Lewenza, president of Canadian Auto Workers local 444 in Windsor, so "you've got to hope that the market doesn't fall further."
The market for Chrysler vehicles fell in June, sales figures to be released today will show, Mr. Press added, but it's close to the company's plan because of a deliberate reduction in sales to fleet customers.
Sales are also expected to drop dramatically for Ford Motor Co. and General Motors Corp., which have already announced plant closings and major trims in production to address plunging pickup and SUV sales.
Shares in those two auto makers plumbed new depths in trading on the New York Stock Exchange, as did Magna, which hit a 52-week low in Toronto Stock Exchange trading.
"We expect recent vehicle mix trends to continue to favour small cars as consumers shun gas-intensive light truck platforms," Citigroup Global Markets Inc. analyst Itay Michaeli said in a note to investors.
Ford sales likely plunged 21 per cent and GM deliveries 25 per cent, Mr. Michaeli said.
He forecast that overall U.S. sales dropped to a seasonally adjusted annual rate of 12.8 million vehicles last month compared with 16.3 million in June, 2007.
MAGNA INTERNATIONAL (MGA)
Close: $59.24 (U.S.), down $2.93
© The Globe and Mail
