Analysts: Kokomo wage cuts likely

But Indiana city poised to retain big role after sale of Chrysler to equity firm

FRANKFURT, Germany -- DaimlerChrysler agreed Monday to sell its ailing Detroit brand to a New York investment firm in a deal that might renew pressure to cut wages and benefits of autoworkers, including 5,000 Chrysler employees at Kokomo.

What it means to . . . Indiana Chrysler's presence in Kokomo likely will survive because it includes some of the company's most advanced manufacturing plants. Workers Some analysts expect that Cerberus Capital Management, the private equity firm that is buying 80 percent of the automaker, will require concessions from the United Auto Workers to cut costs. The buyer Cerberus, which made the $7.4 billion offer, also owns General Motors Corp.'s financial arm, as well as auto suppliers CTA Acoustics and GDX Automotive in Farmington Hills, Mich.

But analysts say Indiana appears well-positioned to remain a key part of the company's future after Cerberus Capital Management pays $7.4 billion for 80 percent of the automaker.

Gov. Mitch Daniels, who met with DaimlerChrysler Chairman Dieter Zetsche in his Stuttgart, Germany, office Monday as part of a previously planned trade visit to Europe, said the change in control could give "staying power" to Chrysler's Kokomo transmission operations.

Daniels said his meeting with Zetsche assured him Indiana seems bound to keep the transmission complex in Kokomo and that the state remains in the running for a plant that will supply transmissions to Chrysler.

Daniels is scheduled to meet with the supplier, Getrag, this morning in Frankfurt, Germany. The German company has scouted the Midwest for plant sites, including locations near Kokomo and Tipton.

The plant would produce a fuel-efficient transmission expected to be used in a wide range of Chrysler, Dodge and Jeep vehicles by 2010. It would employ 1,200.

"Ever since the announcement that a sale of Chrysler would be considered, I've worried that the Getrag project could derail," Daniels said. "I don't get that sense now."

Daniels was optimistic about Cerberus, which will be the first private investment firm to acquire one of the nation's Big Three automakers.

"They are not known as a short-term, buy-and-flip sort of investor," Daniels said. "There is a very large amount of capital coming into the company, and there is every indication of continuity in the management of Chrysler."

Under Cerberus, the company would revert to its former name, Chrysler Corp.

Daniels, President Bush's former budget director, served in the White House with John Snow, who now heads Cerberus.

"He knows the importance of manufacturing to the strength of the country," Daniels said of Snow, a former CSX Railroad executive who was Bush's treasury secretary. "He knows how important logistics is in a place like Indiana."

Chrysler has manufactured parts in Indiana since 1903. The company remains a key piece of the state's industrial economy, buying auto parts from more than 100 independent supply plants in Indiana that would have to lay off workers if Chrysler sales continue to slide.

Already, the company has cut employment statewide to about 5,000 from more than 9,000 a few years ago.

Analysts doubted there would be immediate changes in Kokomo, the sole source of transmissions for the Chrysler, Dodge and Jeep brands.

"I don't think it's going to have an impact on Indiana's transmission facilities, only because Chrysler has committed to so much investment there," said auto analyst Paul Lacy of market researcher Global Insight in Lexington, Mass.

"Chrysler, like the rest of the Big Three, is in trouble; and one of the solutions is trying to make use of their more competitive facilities. Their Indiana facilities are very new," said economist Patrick Barkey of Ball State University in Muncie.

Analysts said Chrysler needs a top-selling vehicle to help pull it through and reduce the need for profit-sapping consumer incentives.

Without a top-selling vehicle to drive up profits at Chrysler, Cerberus is expected to lean on manufacturing expert Tom LaSorda, the head of Chrysler, to continue looking for ways to drive down costs until the next generation of autos, including a highly regarded minivan, reaches dealers in a few years.

Chrysler's new owner plans no job cuts beyond the 13,000 already announced this year. But some analysts expect Cerberus will require concessions from the United Auto Workers to cut costs, and they doubt the union will want to reduce wages or benefits.

Monday's deal would undo Daimler's 1998 Chrysler buyout, which was hailed as the marriage of a well-heeled European and a flamboyant American thought by many to be the world's best car designer.

General Motors replaced Chrysler as the most efficient automaker in Detroit, making it difficult for Chrysler to compete on price. And tough Japanese rivals took away car sales and edged Chrysler in minivan leadership. Chrysler wound up dragging on Daimler profits.