Economy and Manufacturing & Technology and Technology

ROUGH ROAD AHEAD?: Chrysler foundry's closing a warning sign for other plants

September 12, 2005
Chrysler foundry's closing a warning sign for other plants The closing of DaimlerChrysler Corp.'s foundry west of downtown at the end of this month signals more than the end of nearly 900 jobs there.

"There's a fundamental change occurring in the automotive industry right now," said Matthew Will, director of the University of Indianapolis' graduate business program and associate dean in the School of Business. "Unless local manufacturers in this sector don't reposition, I would certainly expect to see more job losses."

Industry experts said domestic auto manufacturers are under more pressure than ever to reduce costs and improve quality as relatively small foreign players such as Hyundai and Kia gain U.S. market share and traditional powers such as Mercedes and BMW expand. To compete, domestic automakers and their suppliers are putting an increased emphasis on lean and advanced manufacturing, techniques more commonly pioneered by Japanese firms. "High-tech, high-skill manufacturing is the key in this sector-like m a ny - t o holding d ow n c o s t s ," Will said. "There's pain in this transition. But it's also a sign of a growing economy."

Almost 12,000 of the 45,000 jobs at the Indianapolis area's 25 largest manufacturers are in the automobile industry. According to the Bureau of Labor Statistics, about 20 percent of Indiana's 575,000 manufacturing jobs are in the auto sector.

"We're second only to Michigan in our exposure to the auto industry," said Pat Kiely, Indiana Manufacturers Association president. "We should be more worried about the current market changes than I think we are. In the next 12 to 24 months, I think how these market changes are handled will determine who stays and who goes."

Chrysler officials were reticent to discuss why the company is closing the plant, but admitted operating costs were a key factor.

With some of the foundry jobs paying $80,000 to $100,000 annually, those jobs, industry experts said, will be difficult if not impossible to replace.

The foundry, which is on South Tibbs Avenue, began as the American Foundry Co. and was sold to Chrysler in 1947. In recent years, it's been used to make V-6 and V-8 engine blocks for Chrysler automobiles.

"Why does any business close?" said Daimler-Chrysler s p o ke s m a n E d Saenz. "Because it's not profitable."

Saenz said Chrysler concluded a few years ago that it was more cost-effective to buy the engine blocks from outside suppliers. Saenz said Daimler-Chrysler will outsource the work for less, though he declined to say where the work will be done.

A provision in the four-year labor agreement struck by Daimler-Chrysler and the United Auto Workers in 2003 called for the foundry to close by the end of the third quarter of 2005.

"A lot of the low-tech operations are dying a slow death," said Patrick Barkey, an economist and director of economic and policy studies at the Miller College of Business at Ball State University. "These facilities need upgrades, but the big three [auto manufacturers] have to be careful on what they're going to invest in, and they're not investing in these decades-old facilities."

Investment alone won't save the jobs, Will said, noting that the local foundry underwent significant upgrades in 1996 and 2000.

"Some of these improvements might have come too late," Will said. "The U.S. auto manufacturers now find themselves in second place and they're being forced to reinvent themselves."

Industry experts said Japanese firms have driven down prices and improved quality with advanced technologies. One local manufacturing executive said General Motors, Ford and Chrysler are responding by seeking 5 percent to 10 percent annual cost reductions from suppliers.

Thom Bennett, national sales manager for Keihin IPT Manufacturing Inc. in Greenfield, said he long ago saw the writing on the wall. Keihin, a maker of fuelmanagement systems that employs 1,100 in Greenfield and another 400 in Muncie, is partly owned by Japan-based Honda Motor Corp. Before Bennett came to Keihin 11 years ago, he spent 15 years working for U.S. automakers.

"Our product is captured 100 percent by Honda, and Honda is still growing its product lines and increasing market share," Bennett said. "So I think the jobs here are safe."

But he's not so sure about plants with links to the U.S. automakers.

"I noticed a fundamental difference in the way Japanese companies run their businesses," Bennett said. "[Japanese companies] constantly drive efficiencies and have an eye on quality and on-time shipping. In this industry right now, it's feast or famine."

There's still hope for central Indiana's auto sector, said Gary Vasilash, editor of Automotive Design and Production, an industry publication based in Plymouth, Mich.

The city's central location and strong rail and highway systems make it a desirable automotive manufacturing hub, Vasilash said. But he added: "They can't rely on their traditional strengths alone."

Will said moving to high-technology advanced manufacturing might be the key to preserving jobs. He said the presence in the region of Purdue University and Rose-Hulman Institute of Technology could serve as a magnet to draw high-technology manufacturing jobs here.

But Vasilash said highly automated, advanced manufacturing plants often need fewer people.

"That's the part no one wants to talk about," he said.

Still, he said, manufacturers can't pine for the old days.

"What they have to start doing in some way, shape or form is add innovation to what they're supplying," Vasilash said. "If you produce something with no differentiation, someone will always be able to do it cheaper. That's painfully evident at Chrysler's Indianapolis foundry."
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