Oct. 14 (Bloomberg) -- Gloom is spreading across Moraine, Ohio, as General Motors Corp. prepares to shut a sport-utility vehicle plant two days before Christmas, abandoning a factory in the Dayton suburb of 7,000 that stretches back to making refrigerators in 1921.

``The whole town is going to be devastated,'' said Cathy Miller, 51, who pours drinks at the Upper Deck sports bar across the street from the plant, where employment has fallen from 4,200 to 1,200 in two years.

Sales of Moraine's truck-based Chevy TrailBlazer, GMC and Saab SUVs have skidded in a U.S. economy whipsawed by a credit crunch and $4-a-gallon gasoline. While the Detroit-based automaker said in June it would close the factory in two years, the company said on Oct. 3 the last day would be Dec. 23.

GM announced yesterday it will also shut an SUV plant in Janesville, Wisconsin two years ahead of schedule. The closures come as the company held preliminary discussions with closely held Chrysler LLC about combining their money-losing operations, according to five people with direct knowledge of the talks.

Merger talks and retrenchments by the world's largest automaker are signs that the 100-year-old company's continued existence may be in doubt, said Erich Merkle, an analyst with Crowe Horwath LLP, a consulting firm in Oak Brook, Illinois.

``It's possible, as much as I hate to say it,'' he said. ``Emotionally, I don't want to think so. Rationally and logically, I can't rule it out.''

$15 Billion

Chief Executive Officer Rick Wagoner, 55, plans to save $15 billion by 2009 by scrapping models he can't sell while shifting to more fuel-efficient vehicles.

GM rose 10 cents to $6.62 in New York Stock Exchange composite trading at 12:25 p.m. today after a 33 percent rise yesterday. The shares have fallen 73 percent this year.

Shutdowns in Ohio and Wisconsin reflect ``a market demand that continues to shift'' and has nothing to do with merger talks, said GM spokesman Tony Sapienza.

``This is not a `GM is sinking' decision,'' he said. ``The plant closings are a direct result of where the market is going. This is an industry shift, not just a GM shift.''

Moraine got its name from the geologic term for the sand and gravel that glaciers left in the area, according to the city's Web site. GM has been in the city since purchasing the Dayton Wright Airplane Co. factory in 1919 to open the Frigidaire division. The factory made bomber parts in World War II and returned to assembling refrigerators, washers, dryers and freezers after the conflict ended.

Sole Source

The company sold the Frigidaire name in 1979. Two years later the first Chevy S-10 trucks rolled off the assembly line. The plant in 2006 became the automaker's sole source for TrailBlazer, GMC Envoy Denali and Saab 9-7X SUVs after GM shut a factory in Oklahoma City.

Moraine's final closing notice came two days after automakers reported September U.S. sales fell 27 percent, the worst month since 1991, including a 16 percent drop for GM. U.S. sales through September for the TrailBlazer dropped 37 percent from a year earlier, 44 percent for the Envoy and 30 percent for the 9-7X, GM reported on Oct. 1.

Sales of models built in Moraine peaked quickly after their introduction in the early 2000s, said GM spokesman John M. McDonald. ``They have been declining ever since,'' he said. Newer models from GM and other makers are sized similarly and offer better fuel mileage, he said.

Budget Stress

Median household annual income for Moraine was $34,341, 82 percent of the national level, according to 2000 U.S. Census Bureau statistics on the agency's Web site. The municipal budget will suffer when the factory shuts down, said Mayor Leonard Johnson, 54, who worked at the plant for 30 years before retiring in 2002. City officials have not calculated the loss, he said.

The GM plant employs twice the number of workers as Moraine's next two biggest companies, said Michael Davis, the city's director of economic development. A GM-owned diesel- engine plant and a unit of closely held Englewood, Colorado- based Local Insight Media LP that produces telephone directories have 600 to 700 workers apiece.

``I don't know what we're going to do,'' Davis said of the impact on Moraine. ``We'll take a huge financial hit, have to change the way we operate. We'll have to downsize, but I don't know how we're going to handle such a drastic loss of income.''

Somber Christmas

The timing of the closing is especially unfortunate, said Miller, whose bar is a favorite of many plant workers.

``They're going to have to change their holiday season because they won't have jobs to return to,'' she said. ``It's not going to be a good holiday season.''

Like town officials, Gaylen Turner, 53, president of the plant's union, IUE-CWA Local 798, said he worries what may happen to families that depend on GM for employment.

``Their lives are going to have to change,'' he said. ``There's not a whole lot of opportunities out there for them.''

While some workers are old enough to retire, ``unfortunately, the majority will struggle,'' he said.

Johnson, who's been in office for less than two years, said he made a bus trip to Detroit with other city officials this summer to ask GM executives if they'd use the plant to make something else.

``We pleaded our case and left with a good deal of optimism,'' he said. ``They told us we'd have an hour but they gave us more time. They said they had never seen such strong regional support before.''

Word never came, Johnson said. ``Now, we don't have that hope. There's been no announcement of anything else going in.''

To contact the reporters on this story: Michael Janofsky in Los Angeles, at mjanosky@bloomberg.netAlex Lange in Detroit, at alange4@bloomberg.net

Last Updated: October 14, 2008 12:26 EDT