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Published: Thursday, 7/28/2005

Toledo Powertrain vulnerable if gas price rises, UM report says

BY MARY-BETH McLAUGHLIN
BLADE BUSINESS WRITER

Workers at General Motors Corp.'s Toledo Powertrain plant could face job cuts if gasoline prices continue to rise, according to a report released yesterday.

The plant is one of 16 in eight states and Canada that are vulnerable to closure or job cuts because they are involved in the production of gas-guzzling vehicles, sales of which will continue to be hurt if the price of gasoline keeps rising, according to the study by the University of Michigan Transportation Research Institute's Office for the Study of Automotive Transportation and the Natural Resources Defense Council in New York City.

The study does not give forecasts or make predictions, but instead uses two scenarios of higher gas prices - if oil prices reach $80 or $100 a barrel, the equivalent of $2.86 or $3.37 a gallon, respectively - to show what could happen to the production and profits of automakers, especially GM, Ford Motor Co., and DaimlerChrysler AG.

"What we found is that higher oil prices could bring about permanent loss of jobs and painful changes at the Big Three," said Roland Hwang, the vehicles policy director of the nonprofit environmental council and one of the study's principal authors.

"Given their precarious state of finances, they cannot afford to make a mistake of ignoring fuel economy performances like they have in the past."

The study was conducted before recent news that Toledo Powertrain was boosting daily production from 7,000 rear-wheel-drive transmissions to 7,700. Sales of pickups and other vehicles the plant supplies increased during GM's recent promotion to sell vehicles at employee prices to everyone.

This week, production was boosted again, to roughly 8,000 transmissions daily, because the Toledo factory will be the automaker's lone U.S. plant making four-speed rear-wheel-drive automatic transmissions.

The report released yesterday does not project a specific job loss for the factory, if gas prices rise. Of the 16 plants deemed at risk, it is the only one in northwest Ohio.

The factory on Alexis Road, with about 3,600 hourly workers, supplies more than 30 GM vehicles, including Cadillac Escalade, Hummer H2, and Chevrolet Silverado pickup and TrailBlazer sport-utility vehicle.

The study's authors said yesterday that GM is the most vulnerable of the Big Three to rising gas costs because more of its profit is derived from larger vehicles that are being hit hard by spiraling gas prices. The company announced last month that it plans to cut roughly 25,000 of its 111,000 jobs and to close plants.

Key findings of the report include:

w●Reductions in vehicle sales, especially SUVs, will lead to an industry-wide decline in profits of $11.2 billion to $17.6 billion, with the Big Three automakers accounting for $7 billion to $11 billion of that because of their dependence on SUV and pickup sales.

w●Sales volume in the North American car and light truck market could shrink by as much as 14 percent, or 3 million vehicles, because of higher oil prices' overall effect on the economy. Nearly 75 percent of those sales decreases will occur at the Big Three.

w●At least 297,000 jobs are on the line, with 37 percent of them in Michigan, Ohio, and Indiana. North American auto-related employment in 2009 would drop by a range of 9.8 percent to 15.3 percent if gas prices rise to $2.86 or $3.37 a gallon. About 110,000 to 172,000 of the jobs at risk are in only three states: Michigan, Ohio, and Indiana.

The report's authors contend that high gas prices are likely to continue because of demands on the world oil supplies. The report suggest that automakers, investors, and lawmakers can make changes now to stem job losses and declining sales, with the emphasis on making fuel efficiency a No. 1 priority for new vehicles.

"It is crucial that the states most vulnerable to factory closings and job loss - Michigan, Ohio, and Indiana - lead efforts to retool the U.S. auto industry," the report concluded.

Contact Mary-Beth McLaughlin at

mmclaughlin@theblade.com

or 419-724-6199.



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