$1.8-BILLION DCX PLAN: Investment in state clouded by sale worries

By From freep| Apr 20 2007
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The Chrysler Group on Wednesday announced nearly $2 billion in planned investment for southeast Michigan. But the big question of the day was whether two new plants and other projects will be completed if the U.S.-based unit of DaimlerChrysler is sold.

The plan includes a $730-million engine plant in Trenton, a $700-million axle plant in Marysville, a $300-million paint shop at the Sterling Heights Assembly Plant and $50 million in upgrades at Warren truck assembly and stamping plants.

The axle and engine plants would employ nearly 1,500 fewer people than the plants they would replace, Detroit Axle and Trenton Engine. But company officials were quick to say that does not necessarily mean there will be a loss of jobs. Some people could get jobs at other facilities or go into job banks.

In February, Chrysler Group announced a plan, including the elimination of 13,000 jobs, to return to profitability after operating losses of $1.5 billion last year.

That plan, which included investing $3 billion in more fuel-efficient engines, transmissions and axles, was largely overshadowed by comments from DaimlerChrysler Chief Executive Officer Dieter Zetsche indicating the Chrysler Group could be sold.

Chrysler CEO Tom LaSorda declined to discuss the possibility of a sale, instead focusing Wednesday on efforts to turn around the company.

"The future is all about vehicles and new product and new power trains. We can't just sit back and wait a week or two weeks, or a month or six months, to see what's going on. We have to forge ahead," he said. "Forging ahead is about new designs and new product, and this is all part of it."

Some analysts, such as Lehman Brothers' Brian Johnson, have questioned the timing of the announcement. Johnson said in a note to investors Wednesday that a buyer might undo the commitment to build the axle plant.

"Should Chrysler end up being sold to private equity ... the likelihood of the Marysville plant actually being built would be reduced significantly," he said. "In our view, any potential new owner of Chrysler would likely try and cancel this program. From a buyer's point of view, it probably makes little sense."

Others, such as mergers and acquisitions expert Van Conway, senior managing director with Conway, MacKenzie & Dunleavy, said the decision to go forward with capital investment could be smart.

"They're going to be in business, with maybe different owners. But if you are in business for the long run, and you haven't sold your company -- which they haven't -- then you should still act like you have to operate the company."

He added: "They really aren't doing anything yet. An announcement that you're going to do it doesn't mean a shovel is in the ground."

Whatever the case, some people were happy Wednesday.

Gov. Jennifer Granholm, who was at Chrysler headquarters in Auburn Hills for the announcement, praised the investment.

"Thank you for giving us -- a state that has been so challenged -- something to be very enthusiastic about," she said.

The state is offering more than $11 million in tax incentives for the Trenton engine project. The City of Trenton is offering more than $60 million in tax abatements.

LaSorda said the Marysville plant will build axles that competitors do not make.

"It is a very, very compelling business case that we made the right decision doing it inside," he said.

Worker reaction to the announcement was mixed. Some said they worry about work rules at the new facilities, and there are fears the plans will not come to fruition.

Bruce Barker, a design technician at the Chrysler Tech Center, said the news should quiet rumors about a sale of Chrysler. "I think it's wonderful," said Barker, 51, of Harrison Township. "It's an outstanding development, and it should put to rest all the rumors about Chrysler being sold off and some of us can breathe a little easier. We are all here on pins and needles."

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