Chrysler Shuts Four Plants After Engine Workers Strike
About 1,800 workers went on strike at an engine factory here Thursday, forcing Chrysler to immediately close four assembly plants and furlough 12,000 employees who make some of its most popular and profitable vehicles.
The labor dispute erupted as the company reported record first-quarter earnings of $1.03 billion, largely on the strength of robust sales of light trucks--most of which rely on engines from the strike-bound plant.
The walkout by United Auto Workers Local 15 began at midnight when talks on a new local contract broke off over the familiar issue of outsourcing--the practice of contracting parts work to outside suppliers.
The factory produces engines for the Jeep Grand Cherokee, the Dodge Ram and Dakota pickups and the full-size Ram vans. As engines ran out, production ground to a halt at plants in Detroit; Warren, Mich.; St. Louis; and Windsor, Canada.
The four assembly plants produce about 780,000 vehicles yearly--representing nearly 30% of Chrysler’s production in North America.
“If this strike lasts past Monday or Tuesday, they have a big problem on their hands,” said Michael Robinet, an auto analyst for CSM Forecasting. “It affects the top-profit models for Chrysler.”
A short strike should not immediately affect potential customers because dealers have up to a 60-day supply of vehicles, considered an average inventory. But the plants have been running full out, which would make it difficult to make up the lost production of 3,000 vehicles per day.
The implications for profit are considerable: Chrysler makes up to $8,000 on each Grand Cherokee it sells, and sold 280,000 last year.
The labor strife comes just a day after Chrysler announced plans to invest $1.3 billion in six Detroit plants. The walkout also dampened Chrysler’s financial report on Thursday.
Its first-quarter earnings rose 2.4% to $1.45 cents a share. The results were slightly better than expected by Wall Street analysts. The company earned $1 billion, or $1.30 a share, a year ago.
The increase in profit was achieved despite higher incentives paid to consumers.
The company said rebates and other incentives were $705 a vehicle in the first quarter, up from $640 a year ago. But rebates are continuing to trend up as a result of aggressive pricing by the Japanese auto makers and heavy competition in trucks, minivans and sport utility vehicles.
“The numbers were pretty good given the hefty incentives and the tough competition,” said Joseph Phillippi, analyst with Lehman Bros.
Chrysler’s stock was unchanged at $30 in trading Thursday on the New York Stock Exchange.
Auburn Hills, Mich.-based Chrysler was the first of the Big Three auto makers to report earnings.
Analysts are expecting Ford and General Motors profits, which will be posted next week, to show modest improvements.
Analysts expect the strike to be settled quickly because Chrysler can ill afford to lose truck sales to rivals.
Company and union negotiators are to meet today to set a schedule for further talks. The record profits will give the union something to talk about.
“They want to give away our work,” said Sam Nardicchio, president of UAW Local 51. “If we weren’t making any money, we’d understand.”
The dispute involves local issues, including health and safety issues as well as discrimination grievances.
But sources said the main issue was an effort to move drive shaft production outside the plant, a move that could result in the loss of 150 to 300 jobs.
