From the December 13, 2005 print edition of The St. Louis Post-Dispatch

Chrysler signs off on deal; Automaker has said it wants to invest up to $1 billion at plants. Fenton is willing to kick in up to $46 million in tax abatements. Missouri announces it will provide $32 million in additional incentives
By Gregory Cancelada

Company hasn't said what other models will be built here.
Union agrees to work on team system, based on Toyota model.

Chrysler Group of DaimlerChrysler AG will transform its South assembly plant in Fenton into one of its most modern, flexible facilities, allowing workers to assemble as many as four different models there.

And Missouri appears to have clinched the major investment with a modest $32 million in state incentives.

Chrysler announced Monday, as expected, that it would invest up to $1 billion in its North and South assembly plants in Fenton, with the bulk of the money going to modernize the South plant, which was built in 1959.

"This is not only a capital infusion, but it represents a huge vote of confidence in the men and women who today are building products in two great sites, " Frank Ewasyshyn, Chrysler Group's executive vice president for manufacturing, said Monday during a press conference at the South plant.

But the biggest immediate change for those employees may be in the way their work is organized.

Chrysler will move to a team concept, where employees work in groups and perform multiple jobs. United Auto Workers members have been wary of this idea, a key part of the Toyota production system, because workers feel it weakens job security and erodes a job-classification system that traditionally assigns the best jobs to people with the most seniority.

However, UAW Locals 136 and 110, which represent North and South plant workers, respectively, already have agreed to accept the team concept.

"It's going to be a long-term process, and it's going to mean some major changes, " Local 110 President Glenn Woemmel said after the press conference. "From the union side, we're going to address it in a fashion that supports the worker."

In addition to the state incentives, Fenton already had committed to abate Chrysler's local property taxes, generating a $46 million savings over the next 15 years if the automaker invests the full $1 billion.

Chrysler said the local tax-abatement package was critical to its proposal.

St. Louis County has offered to repave roads and make other infrastructure improvements. However, the county hasn't yet finalized any deal, since it is waiting for Chrysler to identify its exact needs.

Missouri's incentives will come in the form of $16 million in tax credits through its Build program and another $16 million to train local employees. The funding will be done over several years.

By comparison, Illinois offered $36 million in incentives in January to lure a $419 million investment to Chrysler's plant in Belvidere, a facility that had been running a single shift since 2001. Those incentives require the company to create about 1,000 new jobs.

Two months later, Michigan gave $19 million to attract a $506 million investment to upgrade assembly and stamping plants in Sterling Heights.

Chrysler has declined to say whether the plan for Fenton would create new plant jobs, but it told city officials that the two facilities would be at risk of closure without new investment.

After the press conference, Missouri Gov. Matt Blunt said the biggest incentive for the automaker was the state's improved business climate.

"Workers' compensation reform, tort reform really do help those companies make the decision to stay in, come to or grow in Missouri, " Blunt said. "Those are the most significant things that we've done to help people who want to create good jobs in our state."

Just as critical to Chrysler's decision is the Fenton work force, almost all represented by the UAW.

Last year, the South plant became the industry's most productive minivan plant in North America, displacing Chrysler's Windsor, Ontario, minivan plant for the first time, according to the prestigious Harbour report.

Meanwhile, the North plant has been steadily boosting productivity, rising to No. 7 last year from ninth, among 13 full-size pickup plants that Harbour ranked.

Chrysler declined to provide details about its plan, saying only that the investment would start next year. Earlier, the automaker called for an initial $531 million during the next four years, then a possible $500 million in the next five to seven years.

The company also wouldn't indicate what vehicles the facilities would build in the future, only saying that the two plants would continue next year to build their current lineup.

The South plant, which employs about 3,200 people, builds the Dodge Caravan, Grand Caravan and Chrysler Town & Country minivans. The North plant's 2,300 employees assemble Dodge Ram pickups.

The North plant, built in 1966, is expected to continue producing Ram pickups.

However, Volkswagen AG and DaimlerChrysler have been discussing the possibility of Chrysler building VW-branded minivans. And two weeks ago, Ward's Automotive Reports said Chrysler would make them at the South plant and also would transfer the Chrysler Pacifica sports wagon here from Windsor.

After the press conference, Ewasyshyn indicated the big changes at the South plant would come after 2006. Next year, the automaker will focus on preparing the facility for the future, he said.

Creating a more flexible work force is part of Chrysler's move to a production system that could make multiple models in a single plant and shorten the product life cycle.

Flexible manufacturing

Historically, automakers built plants to assemble a particular model or type of vehicle, dedicating much of the tooling to a specific design. When introducing a new model or vehicle, a lot of the plant's equipment must be replaced.

In contrast, Japanese automakers Toyota Motor Corp. and Honda Motor Co. developed flexible manufacturing systems that rely heavily on programmable robots. Such plants can make several different models on a single production line, which means a company can nimbly change its mix to meet consumer demand. Toyota and Honda also can quickly tweak models without a massive retooling.

To improve their competitiveness, the Big Three -- Chrysler, Ford Motor Co. and General Motors Corp. -- now are pushing aggressively for flexible manufacturing.

The South plant will become Chrysler's third assembly plant slated for a massive overhaul as part of the company's flexible manufacturing investment program. Chrysler already plans to convert the Belvidere and Sterling Heights plants into flexible manufacturing facilities.

The initial investment will allow the South plant to assemble more models than ever before.

During "town hall" meetings Friday and Monday, Chrysler told Fenton workers that a new body shop will allow the South plant to build as many as four different models on a single production line.

Fenton's good news comes as General Motors and Ford announce plans to close plants and slash their work forces. GM already has slated its Hazelwood parts distribution facility for closure.

Ford's assembly plant in Hazelwood, where about 1,450 people work, faces an uncertain future. The company plans to announce a restructuring next month that is expected to include closure of several assembly plants.

Though acknowledging that the challenges are significant, Blunt said he would continue to lobby Ford to keep the Hazelwood plant open.

"We've certainly not given up, " Blunt said.

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CLOSING THE DEAL

Missouri will offer $16 million in tax credits through its Build incentive program and $16 million in job training funds, all disbursed over several years. St. Louis County is offering to repave roads and make other infrastructure improvements; a final deal is pending.

Fenton will provide a 70 percent property tax abatement on new equipment and machinery that Chrysler installs over 10 years.

A jury decides in favor of DaimlerChrysler in a lawsuit over a fatal minivan accident in 2002. Metro | B

From the February 4, 2005 print edition of the St. Louis Business Journal

Stern, St. Louis County launch new bond program
Companies can save up to $1 million on a $5 million, 20-year loan
By Bonita L. Tillman

Small and medium businesses in St. Louis County have a new funding source to help expand their companies.

The St. Louis County Economic Council and Stern Bros. & Co. have introduced a new Growth Bond Program that offers low-cost taxable bonds to companies with capital improvement projects valued at more than $2 million.

"Traditionally, companies interested in expanding go to the bank to borrow funds through a conventional loan program," says Don Estell, president of Stern Bros. "This program costs them less because of a floating interest rate."

Under the Growth Bond Program, bonds are issued at the taxable bond rate, currently 2.6 percent. With additional fees, the final rate usually runs about 1.25 percent to 1.5 percent less than standard bank loans available now.

Although the taxable bond rate can change in the Growth Bond Program, the spread between traditional bank loans and those in the program remains fairly consistent, said Ron Braun, senior vice president of Stern Bros.

Companies also can convert the floating bond rate to a fixed rate for all or part of the debt and for any period of time, making it flexible as the company's financial status changes.

The Growth Bond Program requires the borrowing company to secure a letter of credit from a participating bank. All banks are eligible to participate in the program. Banks partnering in the program benefit by helping a client save money and earning a fee for providing the letter of credit.

"It could be very attractive for banks, because they don't have to use their cash on-hand to issue bonds for businesses," Braun said.

Up until a few years ago, almost all companies could issue tax-exempt bonds for industrial development, Estell said. However, when federal laws tightened, manufacturing companies were unable to access the tax-exempt bonds.

While large companies can issue their own low-cost taxable bonds for projects, most small and medium-size companies don't have the resources to do the same. But the new Growth Bond Program is another option, Stern Bros. officials said.

"Some companies aren't even aware they can still issue bonds on a taxable basis," Estell said.

A company could save $600,000 on a $2.5 million loan or $1 million on a $5 million loan over 20 years through the Growth Bond Program, Braun said.

"That's a very significant number if you put it in terms of a small or medium company's budget," he said. "Basically, the biggest deterrent to companies doing this is the knowledge that it's an option."

Stern Bros., a Clayton-based investment banking firm, aids the process by:

* Structuring the transaction to meet the company's goals,
* Acting as quarterback in the transaction by overseeing the process, and
* Purchasing the bond and later selling it to institutional investors, such as mutual funds, money market funds, insurance companies and pension funds.

"This approach doesn't replace a company's relationship with existing banks, but it works in a slightly different way," Braun said.

Rick Palank, senior vice president of business finance for the St. Louis County Economic Council, called the program "a great product" that eventually could expand around the country.

He and Estell began working on the concept about six months ago after realizing that the interest rate on taxable bonds was so reasonable. Shortly afterward, two local projects came to their attention that could have benefited from such a program in St. Louis County.

"I can't understand why no one has done this before now, but we felt there was a real need for it," Palank said. "I'm on the national Council of Development Finance Agencies and no one even talks about it there."

Although several local companies have expressed interest in participating in the program, none of their projects have been completed since the program initially launched a few months ago. However, Palank estimated that 20 to 50 capital improvement projects in the $2 million to $10 million range in St. Louis County could have benefited from the program in 2004 alone.

"I think this will snowball once a few projects are done," Palank said. "If we can help companies in St. Louis County save money, that's great. Who's not for that?"

To initiate a loan through the Growth Bond Program, St. Louis County-based companies should contact the St. Louis County Economic Council. Additional information also is available on the council's Web site at www.slcec.com.

In addition to Clayton, Stern Bros., which employs 35 people, also has offices in Kansas City, Chicago and Sarasota, Fla.

Bonita L. Tillman is a St. Louis freelance writer.

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