Chrysler Drops Production, Idles Minivan Plant Indefinitely

Chrysler has announced yet further production cuts to the company's North American line-up, following what is expected to be a disastrous June sales month for the entire domestic industry. The company released a statement late yesterday (30 June) outlining exactly what changes will occur. Chrysler co-president Jim Press said that the plant closures and slowdowns were economically motivated. "Obviously we're at a slow point," he told Automotive News. "Consumer confidence has been hit by oil prices and the credit crunch. It has created a situation if we want to meet or exceed the targets we have to move responsibly. We're a market-driven company and it's important to match production to sales."

Chrysler plans to:

• Indefinitely idle its St Louis (Missouri) South Assembly Plant, from 31 October. This will eliminate one of the two plants that currently makes the company's minivans, and drop nearly 1,500 jobs from the roster.

• Eliminate a shift at its St Louis (Missouri) North Assembly Plant, where the company makes full-size Dodge Ram pick-up trucks. The move eliminates roughly 900 jobs.

The company has stated that it will work with the local United Auto Workers (UAW) union to help enact some "socially responsible" programmes to help out-of-work employees. Local union representatives blamed the closure and slowdown on political and economic reasons, according to Automotive News. The company can make the minivans less expensively at its Windsor (Ontario) assembly plant on account of the savings afforded by Canadian universal healthcare, stated one local union executive, and the company would rather run its Warren (Michigan) pick-up truck plant instead of the St. Louis plant due to its proximity to the company's home market headquarters. Chrysler co-president Tom LaSorda saw things a bit differently. "When you look at one plant on three shifts and another on one, we had no choice but to go with the volume plant," he said. "We have the capacity for three shifts of work. So that's what we did. Those are the tough decisions we have to make."

Outlook and Implications

Chrysler is facing some extremely difficult economic conditions which are hurting its sales and revenues rather seriously. The choice between the Windsor and St. Louis plants for minivans is obvious; Windsor is running three shifts, producing Chrysler's minivans on two of them and a version for Volkswagen (the Routan) on the third. Adding the international-market Chrysler Voyager should be a relatively simple matter of tooling and process additions. The news is good for the Canadian Auto Workers (CAW) union, which negotiated a new contract with Chrysler last month, and will now see a bit of added security in knowing that it now has Chrysler's sole minivan plant, globally. Adding the export volume to the plant may help make up for falling volumes in the domestic market, which has seen Chrysler's minivans drop by double-digits over the past year despite the introduction of a new model. Similar drops have occurred for the company's Ram pick-up, making the reduction in volume for the St. Louis plant another frankly unsurprising development.

But despite the drop in sales for Chrysler's models, nobody is yet willing to say that Chrysler's redesigned minivans have been a failure. Some were nervous that Chrysler was sticking with the minivan segment when its big competitors Ford and General Motors (GM) decided to instead go down the large crossover utility vehicle (CUV) route. But Chrysler is selling far more minivans than either company is selling in big CUVs, despite a minivan segment drop of 20% through May. Combined however, Chrysler's minivans are down 25% for the first five months, while competitor vans from Toyota and Honda are down, but far less overall. The trend is troubling, but is as much a demographic one as an economic one. Families looking for new vehicles are not buying right now due to the faltering economy, high gasoline (petrol) prices, and consumer credit crunch. But minivans are still a strong segment, and Chrysler is still the dominant player in the segment. For buyers seeking a roomy family vehicle with decent fuel economy and at prices several thousand dollars lower than the big GM or Ford CUVs, there is little competition.

Big trucks are another story. Chrysler has seen sales of the Ram fall 26% in a segment that has fallen 21% through May, which is slightly more than its main U.S. brand competitors. Shuttering one shift at the company's St. Louis plant is likely just the start, if trends towards shrinking U.S. sales continue. Working in Chrysler's favour will be the introduction of its brand-new 2009 Ram, which is about to go on sale. While some have questioned the wisdom of introducing a new pick-up in a time when soaring fuel prices and a devastated construction and housing market have all but choked off sales of the big trucks, one could posit that there is rarely a better time to come out with new and compelling product than right when your competition for every sale is the hardest it has ever been. Ford delayed the introduction of its new F-150 by two months, and GM has delayed the redesign of its fairly fresh big trucks indefinitely, but Dodge is evidently unconcerned about remaining 2008 inventory, and has decided to forge ahead with the introduction of the Ram. The new truck is a dramatic improvement on the old one in nearly every way, and unlike its Ford competition, is available with a low-spec V6 engine that could help fleet and commercial sales.

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