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Do IT this week: Layering
Thousands of workers await news of a potential sale or merger, fearing job cuts would follow. Government heads prepare to react
By Jim Mackinnon
Beacon Journal business writer
Published on Monday, Oct 27, 2008
Welcome to the ongoing saga of the real-world soap opera, As the Struggling Automakers Turn.
The latest episode: Chrysler LLC's private-equity owner is discussing selling the automaker to, or merging with, either General Motors or a partnership made up of Japan-based Nissan and France-based Renault. There might be other behind-the-scenes talks, too.
Whatever the outcome, it will have significant implications for Ohio's manufacturing economy.
GM might primarily be interested in Chrysler's approximate $11 billion in cash and not necessarily want to keep Chrysler's vehicles or Chrysler's dealer network, according to recent news reports.
Among the stakes:
• The Chrysler stamping plant in Twinsburg that makes parts for Chrysler's minivans, trucks and other vehicles is a vital part of that small city and the Northeast Ohio economy.
• Chrysler's Jeep factories in Toledo play an even more important economic role in the northwestern part of the state.
• Including the Twinsburg and Toledo plants, Chrysler has four factories that employ about 5,000.
• General Motors has nine factories in Ohio that employ about 11,700.
• Chrysler has 200 ''Tier 1'' suppliers — which sell products directly to the manufacturer — in Ohio. GM has 239 such suppliers, according to state figures.
As of 2007, the Ohio motor vehicle industry made up 5 percent of Ohio's gross domestic product, according to the latest available state figures. (The motor vehicle industry represents 1.3 percent of the nation's GDP.)
Some analysts have said that half of Chrysler's 66,000 U.S. employees would lose their jobs as plants would close under a merger with GM. Because of that,
the United Auto Workers has stated that the union opposes a GM-Chrysler merger. Ohio UAW officials did not return calls seeking comment.
The big Buckeye State question is, under which scenarios will the thousands of GM and Chrysler-related jobs and hundreds of dependent businesses fare best?
''It is a developing situation,'' said Steve Schoeny, director of the Strategic Business Investment Division in the Ohio Department of Development. ''The impact here is huge. This is a big deal for us and something we're keeping an eye on.''
But there is little the state government can do other than make sure its information and economic data is up to date so that it can react to whatever the ultimate outcome is, he said.
It's not clear that once-mighty GM has the financial clout to do a buyout of Chrysler, whose owner is private equity firm Cerberus Capital Management.
''You have to wonder what the hell they are smoking,'' Ned Hill, professor of economic development at Cleveland State University, said of General Motors.
''It's all about $11 billion in cash Chrysler has,'' he said.
GM's needs
GM wants the cash to keep itself afloat long enough for the company to get back on its feet, the economy to recover and people to flock back to showroom floors. Cerberus, meanwhile, apparently believes it made a mistake in thinking it could buy Chrysler from Germany-based Daimler AG, take a few years to fix things up and then sell or spin off a revitalized company at a profit.
''This is like two drunks leaning against each other to stand up straight,'' Hill said of GM and Chrysler.
The best outcome for Ohio right now appears to be if Chrysler is bought by a company that does not have a large manufacturing presence in Ohio, Hill said.
''No matter what happens, south Ontario and Michigan will be in a world of hurt,'' he said. That's in large part because of the proximity of Chrysler and GM plants that make competing products.
The iconic Jeep brand, while needing an injection of new models, likely will still be made no matter what happens to Chrysler, Hill said. If that proves true, then that bodes well for the Toledo area, he said.
Twinsburg plant
The future of the Twinsburg stamping plant under different ownership is a bit more clouded, Hill said.
The trend in automobile manufacturing now is to integrate stamping plants with vehicle assembly plants, rather than a stand-alone facility such as Twinsburg that ships its parts to far-away factories, Hill said.
Twinsburg Mayor Katherine Procop said she hopes that the stamping plant, which is the city's largest private employer with more than 1,000 jobs, will remain viable. The plant, which celebrated its 50th anniversary last year, has been upgraded over the years and uses modern technology, she said.
''Yes, they are an important corporation here,'' Procop said. Income tax revenue from the stamping plant provides 18 percent of the city's tax base, she said.
But besides providing taxes, the stamping plant has a huge impact on the families who have people employed there, she said.
''It should continue to have a long future here,'' Procop said.
Dealer networks
On another front, Hill said it would be difficult for GM or another buyer to quickly diminish or close down Chrysler's nationwide dealer network, he said. That's in large part because dealers have significant protections under state franchise laws, he said.
And dealer buyouts can be costly, he said. GM spent about $2 billion to compensate its Oldsmobile dealers when the company ended that model line, he said.
Ron Davis, general manager of Falls Chrysler Jeep Dodge in Cuyahoga Falls, said he does not think a GM buyout of Chrysler would be a good thing for his business and other Chrysler dealers.
He has seen Chrysler over the years eliminate its Plymouth and Eagle brands, while General Motors left its Oldsmobile dealers with nothing to sell, he said. More recently, he said he has watched nearby competing dealerships close down.
''I think competition is good for the world,'' Davis said. ''General Motors, in my opinion, is in no better condition than Chrysler. We could buy them.''
While the nation is in a tough economic situation now, he said he thought things were harder for the domestic automakers back in the 1970s.
''I've seen it a lot worse than this,'' Davis said.
Duane Huff, treasurer and co-owner of Barberton-based Fred Martin Motor Co., which owns GM and Chrysler dealerships, said he would prefer not to see the two companies merge. It looks now that GM will not be able to do a Chrysler buyout, he said.
Huff said he thinks it would be best if both companies, who say bankruptcy is not an option, found outside investors who can provide needed capital.
''We're just looking forward to both companies emerging from this stronger,'' Huff said. ''Anything that makes General Motors and Chrysler more viable companies is a good thing.''
Chrysler dealers need to know that the automaker has an owner that is in solid shape financially and will be around for a long time, said Gary Adams, president of the Greater Cleveland Automobile Dealers' Association.
''Does that come from a GM-Chrysler merger? I don't know,'' he said. But combining the two companies could propel sales, he said.
Despite ongoing dealership consolidations, the automakers still feel there remain too many dealers nationwide, Adams said. Fewer overall dealers would mean the ones that remain are stronger financially, he said.
But it will still take a while to shrink the dealer base, he said.
In any case, Cerberus has not turned out to be a good owner for Chrysler, he said.
''They're an example of an outsider thinking they know more than an insider,'' Adams said. ''That business model for the automakers has failed time after time.''
And now Ohio is among the states waiting to see if yet another business model for two of the Big Three automakers will fare any better.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.
Welcome to the ongoing saga of the real-world soap opera, As the Struggling Automakers Turn.
Get the full article here.
Comments
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Posted 06:56 AM, 10/27/2008
And the swirl gets faster and faster.
Posted 09:35 AM, 10/27/2008
How can the UAW "oppose" this merger? It's there tactics that have largely choked the US automakers to death and now we are left with more lost jobs in Northeast Ohio. When will we learn that you can't dictate to business how much to pay workers and how and when you can fire them??????? Will it take every last employer leaving the area for that lesson to sink in???? ENOUGH!!!
Stow, OH
Posted 12:51 PM, 10/27/2008
I thing is for certain,NE ohio is going to be hurting .People are fleeing this area in droves.People don't live in this area for the great weather ,if the jobs continue to leave so will the people.
Posted 02:10 PM, 10/27/2008
Buy-Outs........Relocation & New Union Contracts.
21ST Century restructuring.
Orrville, Oh
Posted 03:10 PM, 10/27/2008
Reality demands GM and Chrysler market total cost of producing their product and service, including cost of all taxes, every employees living, pension, and health care, in the wholesale and retail price of their product and service!
