Chrysler Group LLC is expected to announce Wednesday it will invest $365 million in the Toledo factory that makes the Dodge Nitro, above. As many as 1,100 jobs plus expansion to make additional vehicles are among plans outlined in tax-aid applications.
Three days before the head of Chrysler Group LLC is expected to announce a $365 million expansion and possibly 1,100 new jobs at the automaker's Toledo Assembly complex, it is uncertain whether the deepening financial crisis in Europe will cascade into caution about corporate spending in general and in particular at a company whose partner is based in debt-plagued Italy.
Industry analysts and other experts say the current Toledo project should be OK, but future plans could be curbed. Chrysler says only that it has an announcement Wednesday that Chief Executive Officer Sergio Marchionne and state and local political dignitaries will attend.
Expected is the announcement of investment and jobs outlined in Chrysler's requests for state and local tax assistance. These include a new second work shift at the complex's factory that makes Jeep Liberty and Dodge Nitro compact sport utility vehicles. Included in the documents is a planned $8 million expansion of the factory, which then could make additional types of vehicles.
Industry analysts have said they expect the $365 million investment could be the first of a number of expansions at Toledo Assembly, with more jobs added as Chrysler ramps up production to meet global demand for up to seven current and future vehicles, including its current key product, the Jeep Wrangler. It could mean, analysts have said, the addition of a third shift, and more jobs, if there is demand for Chrysler's products. Toledo Assembly has about 1,800 Chrysler workers and about 700 on-site supplier workers.
But, with Chrysler forced in 2009 to partner with Turin, Italy-based Fiat SpA in order to emerge from an expedited bankruptcy, the downward spiral of the European economies -- especially Italy's $2.57 trillion in debt -- raises questions about whether the car industry globally is solid enough to attract investment money to build new products and whether Chrysler's 53.5 percent ownership by Fiat will somehow reverse or curb spending in the United States.
Katie Merx, a spokesman for Chrysler, said the company does not speculate on future events or scenarios.
Rebecca Lindland, senior auto analyst at IHS Global Insight, said Mr. Marchionne and the Fiat/Chrysler management team might decide to become more conservative on their plan for Toledo Assembly, perhaps drawing out the timetable or holding off on some planned product models.
"You may not see a significant reduction in their existing plans [for Toledo Assembly], but you may see limited future expansion in those upcoming plans," she said.
Joe Phillippi, an analyst with AutoTrends Consulting, said that, despite plans to integrate Fiat and Chrysler under one management, they are not one company. If Fiat is hurt by the European debt crisis, Chrysler may not be, he said.
"The investment in Toledo and the rest of North America would obviously come from Chrysler's profitability," he said. "They're not consolidated entities, so you can't mix the Chrysler money with the parent firm's money."
And Chrysler's profits have been strong, he added. As a result, he said, "I suspect that the potential profitability of the Jeep portfolio means there's little likelihood that they would suddenly pull the plug on the expansion. You can't do half a project or half a plant. You've got to be all in."
However, the bigger risk would be if a European financial crisis triggers a meltdown on Wall Street, which could ultimately hurt Chrysler, Mr. Phillippi said.
And economic problems in Italy could cause Chrysler to cancel future Fiat-related products it may have planned for Toledo Assembly. Analysts at the Chrysler-centric Web site Allpar.com have said six or more vehicles could be made at Toledo Assembly, including two-door and four-door Wrangler models, a new Jeep Liberty, a Chrysler-badged crossover, a Lancia-badged version of the same vehicle for export, and a new Alfa Romeo SUV.
Mr. Phillippi said a crisis in Italy could kill the Alfa Romeo or Lancia vehicles if plans for them are not fully developed.
"If the resource engineering and tooling money has been spent there's little likelihood that [near-term products] will be affected. But vehicles that are farther out, in the 2013 or 2014 time frame, they could be affected," he said.
Analyst George Peterson, of AutoPacific Inc., said the word he would use regarding Fiat, the crisis in Italy, and Toledo Assembly is "concern."
"Fiat is very closely tied with Italy and the strength of the Italian economy," he said. "As the Italian political situation evolves and the way their economy is kind of cratering at the moment, all of those things don't bode well for Fiat, given the strong support they've been giving to Chrysler all along."
But, he said, Chrysler has been doing well financially, so "to back off at this point [on expansion] is something they'd have to examine extremely closely."
Sean McAlinden, senior economist at the Center for Automotive Research in Ann Arbor, said an Italian crisis' effect on Chrysler's plans depends on how Mr. Marchionne plans to pay for Chrysler projects. The company has announced $4.5 billion in investments by Chrysler at seven plants, creating 2,100 jobs and retaining 10,000.
Because it is a private company, Chrysler's finances aren't known.
"If funding were coming from Italian banks that are tied to the government there, they might be in jeopardy," Mr. McAlinden said. "The Italian banks are trying now to improve their cash reserves for what they see are coming problems. They may be rather hesitant to make large loans now because they're going to lose a lot of government debt."
That would mean Mr. Marchionne would have to go elsewhere to borrow, if that is his plan. "Wherever they go, there may not be as friendly faces at the table when they go to borrow," he said.
Alternatively, Chrysler still has access to borrow up to $3.5 billion from the U.S. government under the Department of Energy's Section 136 program that provides $25 billion in low-interest loans and grants to automakers and parts suppliers.
Because the money must be used on advanced-technology vehicles and components in the United States, Mr. McAlinden said, it would have to be spent at Chrysler's Belvidere, Ill., and Sterling Heights, Mich., plants, where the company plans to build a small Fiat-designed fuel-efficient car to compete with the Ford Focus and Honda Civic.
"But using it would release other money that could be used for Toledo and other plants," he said.
Contact Jon Chavez at: email@example.com or 419-724-6128.
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