Chrysler to shut minivan plant as sales slump

DETROIT Mon Jun 30, 2008 11:27pm EDT

1 of 3. Robotic arms work on the assembly line at Chrysler's St. Louis South Assembly Plant in a 2000 file photo.

Credit: Reuters/Chrysler/Handout

DETROIT (Reuters) - Chrysler LLC will shut its St Louis minivan plant, cutting production of its top-selling vehicle and 2,400 factory jobs in a sign of the automaker's troubles with a market reeling from record gas prices.

Chrysler said it would close the assembly plant -- one of two North American facilities dedicated to the Dodge Caravan and Chrysler Town & Country -- and eliminate a shift at a nearby assembly plant that makes the Dodge Ram pickup truck.

The third largest U.S automaker, which relied on sales of trucks (which include minivans) and SUVs for almost 70 percent of its sales, said it expected to post a significant decline in sales in June.

Chrysler's production cuts follow similar steps from larger rivals General Motors Corp and Ford Motor Co, both of which have cut truck production in response to weaker sales in recent weeks.

Chrysler, now controlled by private equity group Cerberus Capital Management , has seen U.S. sales drop 19 percent in 2008, the largest drop for any major automaker.

"This environment forces us to make some very difficult decisions," Tom LaSorda, Chrysler's senior executive in charge of manufacturing said on Monday.

"The auto industry is going through some turbulent times -- slow economy, including mortgage crisis and the weak housing market, escalating oil prices and the rapid consumer shift from trucks and SUVs to smaller, more fuel efficient vehicles," he said.

LaSorda, like other Chrysler executives, said the automaker was meeting and exceeding its financial targets, in part because executives had been more cautious early on about the risk for a sales downturn this year.

"Chrysler was aggressively conservative late last year in planning for 2008, allowing us to be better positioned for the slowdown than some of our rivals," LaSorda said.

Cerberus is "absolutely not" considering a breakup of the company, LaSorda said, calling the suggestion "hogwash" on a call with reporters.

MINIVAN SALES DECLINE

Chrysler pioneered the market for family-friendly minivans in the early 1980s when it was bouncing back from a brush with bankruptcy under then-Chief Executive Lee Iacocca.

To underscore the importance of the "bread and butter" minivans to Chrysler, LaSorda unveiled the new models in 2007 on a stage in Detroit decorated to look like a giant loaf of white bread.

But sales of minivans have declined in the past few years as U.S. consumers shifted to crossovers and SUVs. More recently, the surge in gas prices, a slumping U.S. housing market and tighter credit have pulled auto sales down for all categories of larger vehicles.

Total minivan sales in the U.S. were down 20 percent in the first five months of 2007, according to Autodata Corp.

U.S. sales of Chrysler's Town & Country minivans were down 13 percent through May while sales of its Dodge Caravan model fell 35 percent.

Ford and GM discontinued their minivans after a steady decline in sales of the vehicles. Chrysler had 30 percent of the U.S. minivan market through May.

Chrysler competes mainly with Japan's Toyota Motor Corp. and Honda Motor Co in the segment.

Chrysler said the production cuts would lead to a reduction of about 2,400 hourly jobs.

Under its agreement with the United Auto Workers union, laid off Chrysler workers will receive up to 95 percent of their weekly after-tax pay, minus $30. Such supplemental unemployment benefits are capped at $451 million for Chrysler under the contract, which runs until 2011.

The contract also includes the provision that Chrysler cannot unilaterally close UAW-represented plants. In a move to honor that provision, Chrysler said it would "indefinitely idle" the facility in making Monday's announcement.

"We see no intent to re-run this plant," LaSorda said.

With the closing of its St. Louis plant, Chrysler will build minivans only at its Windsor, Ontario plant, which is being shut for three weeks in the summer for inventory adjustment.

"This is a reflection of the market," said Ken Lewenza, president of Canadian Auto Workers union Local 444, which represents the Windsor plant. "It doesn't affect us today, but if the market continues to decline, you can't ignore the fact that we could be the next hit."

(Additional reporting David Bailey, editing by Phil Berlowitz and Carol Bishopric)

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