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Friday, November 2, 2007

Chrysler Layoffs and the U.S. Auto Industry

I don't really want to get to deep into the discusson about the new layoffs at Chrysler, but there are alot of issues surrounding this that I'd like to talk about. And in my current MBA class I've got two classmates and the instructor with many years of auto industry experience, so maybe we'll hear from them.

There's alot of talk about the auto industry in the U.S., and has been for several years now. The U.S. auto manufacturer's are in decline while the Japanese automakers are rising. It's a complex situation and everyone has their opinion, so let's look at it. The recent contract talks at all three U.S. automakers brings it into the limelight again. The Chrysler situation adds some new things to the mix. Since they were recently bought by a private equity firm the dynamics change. Chances are the new owners aren't looking to run the business for the long term. They want to come in, turn the company around, then get out and make a profit doing it. Nothing wrong with that. That's what business is all about. The problem, if there is one, is how they go about making the turnaround. Laying off thousands of workers is never good. The employees suffer, sometimes severely, and the local economy suffers, sometimes severely.

But we have to ask why they're laying off these workers, and if there's another solution. If the company has more capacity than they need for the current market, it doesn't make business sense to keep that excess capacity. But can that excess capacity, labor, equipment, facilities, space, be used in another way or for another purpose that generates income? The easy solution is to shut down plants, eliminate shifts, and layoff people. It's a harder answer to think up ways to use those resources, very valuable resources, for other opportunities, but that is managment's job. What else could they use those facilities and people for that will generate income, and profits? And what would it take to make those changes?

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