Scuttled Chrysler parts plant an emblem of uncertainty

TIPTON, Indiana (Reuters) - The construction crews have checked out of the Flamingo Motel, a $35-a-night motor lodge across the state road from a gleaming and still-unfinished auto parts plant that may never hire a single worker.

"It's a big, sad story," said Kishor Patel, who owns the Flamingo and has watched guests slip away along with the town's dreams for a bonanza of 1,200 steady jobs making transmissions for Chrysler LLC.

With the U.S. auto industry pushed to crisis, Detroit's uncertainty is rippling out to towns like Tipton, Indiana, where auto suppliers and their workers wait in an uneasy limbo.

German transmission supplier Getrag has suspended work on the $530-million plant in Tipton, now 80-percent complete.

In a dispute that will shift to a Michigan court, Chrysler told Getrag this month it was terminating the deal to supply fuel-saving transmissions for a new-generation of engines Chrysler had hopefully dubbed its "Phoenix" project.

The breakdown of the Getrag deal is one of several disputes between Chrysler and its suppliers to have shot to public view in recent months, as the struggling automaker's sales have plunged and its private equity owner Cerberus Capital Management has ordered steps to shore up cash.

Now with Cerberus in talks to sell Chrysler to General Motors Corp GM.N, Chrysler's supply base has gone to code red as companies small and large scramble to assess the risk they would face from lost business in a merger.

According to people familiar with the talks, GM has also pushed to clarify how many of Chrysler's suppliers could be facing deep financial problems or bankruptcy in the event it takes over its smaller rival.

Chrysler said on Friday it would cut about 25 percent of its white-collar workers, near 5,000 jobs, and cut capital investment. A day earlier, Chrysler announced it was cutting 1,825 jobs at SUV plants in Ohio and Delaware.

The downdraft has also hit Tipton. The Getrag plant would have been a welcome boost to a county where the unemployment rate is near 8 percent. It would also have been first step in an industrial food chain meant to feed union-represented axle and engine plants in Michigan.

But Chrysler has now put much of its future product development work on hold as it hunkers down at a time when industry-wide U.S. auto sales are near two-decade lows.

"Anything they have been investing from 2010 onward is being put on hold or delayed," said Lars Luedeman, an analyst at Grant Thornton.

TALE OF TWO TOWNS

Meanwhile, less than two hours drive to the south, Japan's Honda Motor Co (7267.T) this month started production at a new assembly plant in Greensburg, Indiana, that will make 200,000 compact Civic sedans annually when it hits its stride.

The good times in Greensburg underscore how the pain of the current auto downturn has been uneven. Riding high on the strength of its fuel-efficient line-up, Honda is now in a statistical dead heat with Chrysler for the No. 3 spot in the U.S. market.

A bedroom community where many residents commute to work in Kokomo to the north or Indianapolis to the south, Tipton is surrounded by wheat, corn and bean fields.

Getrag has said it is exploring alternatives for the Tipton plant and plans to seek reimbursement from Chrysler for expenses incurred by Getrag and its suppliers.

Tipton community leaders remain hopeful the plant and its jobs can be saved.

"Our hope and expectation is that since so much has been invested, that in 2009, it will be producing transmissions," said Thomas Dolezal, a Tipton County commissioner. "Going into this, we felt confident we had two good companies."

The facility had been planned as the first transmission plant for Getrag in North America and would join other Chrysler transmission plants and a casting plant in the region.

Getrag has other plants in North America that supply other components to automakers including GM for vehicles such as the Chevy Traverse, Buick Enclave and Cadillac CTS.

The Tipton plant was set to supply up to 700,000 dual-clutch transmissions per year to Chrysler. Those transmissions allow quicker and smoother shifts that improve fuel economy, long a concern for Chrysler, which has a truck and SUV heavy lineup.

Chrysler sued Getrag in Michigan two weeks ago, saying Getrag had failed to secure pledged debt financing of up to $300 million needed to complete the plant. Getrag disputes that claim.

At Christopher's Family Dining restaurant, retiree Bill Sutton Jr, a 40-year Tipton resident said the area had seen other plants come and go with big promises of work.

"We don't get too excited about someone coming in here now," Sutton said. "Maybe someone else will want to buy it."

At Sherrill's on the edge of Tipton, the gas pumps are shut and traffic at the store is half what it was now that construction crews have packed up their tools and moved on.

"Tipton is suffering because of this," said cashier Tina Winn. "People were depending on these jobs."

(Editing by Maureen Bavdek)