Chrysler LLC, responding to a severe sales slump, tight credit and urgent need to preserve cash, will idle all of its North American manufacturing operations for at least 30 days beginning this Friday. And Ford Motor Co. has a planned shutdown affecting nine of its North American assembly plants for an extra week in January due to the slumping U.S. auto market, under previously announced plans to trim first quarter output. A tenth Ford facility, Kentucky Truck Plant in Louisville, is down for retooling.
Ford’s annual two-week holiday shutdown continues through Jan. 12 at all operating assembly plants except those in Claycomo, Mo., near Kansas City, and the automaker’s Dearborn, Mich., truck plant. Those two plants build the new F-150 pickup, Ford Escape and Mercury Mariner and will resume production on Jan. 5. Ford will also align production at some engine, transmission and stamping plants, or idle portions of them to match downtime at assembly plants.
Chrysler’s U.S. sales have slumped 28 percent this year — the biggest drop among major automakers. Ford’s sales have dropped 19 percent. And the outlook for industry sales in 2009 remains weak in the wake of the ongoing recession.
Chrysler recently cut 5,000 white-collar jobs as part of ongoing restructuring moves, and, like General Motors Corp., is in negotiations with the Bush administration to secure billions of dollars in federal loans to stay afloat and avoid bankruptcy. Chrysler warned Congress earlier this month it was running dangerously low on cash and may not be able to pay its bills after Jan. 1, 2009.
Operations at the 30 Chrysler factories — including assembly, engine and transmission plants - will be idled at the end of production shifts on Friday, Dec. 19, and will not come back up until Jan. 19, 2009, or later.
While some workers will be back on the job on Jan. 19, the need to align inventory with demand will see other plants idled for a longer period, the company said in a statement today. The Toledo North and South plants will be closed until Jan. 26, for example. And a minivan plant in Windsor, Ontario, will be idled for a full month.
Tight credit markets, slumping consumer confidence, falling home values and rising unemployment have squeezed U.S. car shoppers and dealers, putting another dent in Chrysler’s ability to sell new cars and trucks. Volatile gas prices have also discouraged U.S. consumers from visiting new car and truck showrooms.
Chrysler’s product lineup — heavy on pickups, SUVs and other light trucks — has made it especially vulnerable in the current sales downturn, analysts say.
“Chrysler dealers confirmed to the company at a recent meeting at its headquarters, that they have many willing buyers for Chrysler, Jeep and Dodge vehicles but are unable to close the deals, due to lack of financing,” Chrysler said in a statement. “The dealers have stated that they have lost an estimated 20 to 25 percent of their volume because of this credit situation.”
Chrysler is not alone in cutting output and suspending expansion plans amid the economic slowdown.
In Mississippi, Toyota Motor Corp. has halted construction on a new assembly plant. GM said today it was suspending construction on a new engine factory in Flint, Mich.
In another sign of the automaker’s mounting woes, Chrysler Financial recently warned its dealers that it may be forced to temporarily stop financing their vehicle inventories if dealers keep pulling large amounts of their money out of an account that helps fund those loans.
Thomas F. Gilman, Chrysler Financial’s vice chairman and vice chief executive, told dealers in a letter dated Dec. 12 that recent withdrawals from the company’s cash management account have been “unusual and unprecedented.”
More than $1.5 billion has been withdrawn by dealers from Chrysler’s cash management account since July and daily withdrawal requests are near $60 million, he said.
Chrysler Financial continues to provide financing for 75 percent of all Chrysler LLC vehicles shipped to U.S. dealers. The company has 3,300 Chrysler, Jeep and Dodge dealers.
Under the cash management account, dealers can prepay their floor-plan financing costs and reduce outstanding debt. The program currently offers a 2 percent reward for participating dealers through June 30, dealers say.
Gilman said the recent withdrawals have resulted in a drop in Chrysler Financial’s wholesale capacity, which has left the company with less funding to provide loans to dealers.
“The daily rate of withdrawals has placed a constraint on wholesale that is troubling to us,” Gilman wrote in the letter, obtained by the Wall Street Journal. “Continued significant levels of withdrawals from CMA could potentially force us to temporarily suspend wholesale financing.”
Gilman asked dealers to try and limit their withdrawals from the account, maintain or even increase their balances.