A Mack plant at nearby Macungie, about five miles southwest of Allentown, that employs 1,600 people will not be affected by yesterday's decision, the company said.
The union had proposed having Mack employees invest up to 6 percent of their wages in company securities to help finance the construction of a new plant within 50 miles of Allentown. The union had said the company would save up to $90 million by adopting its plan.
In a statement yesterday, Mack officials said savings from employee investment in the firm would not be "substantially equivalent to those that could be realized at an out-of-state location."
Mack spokesman William D. McCullough said the Allentown plant would be phased out gradually while a new plant was built. He said a timetable had not been set for deciding a location for the new plant, which would employ an estimated 1,000 people.
Mack, which has operated in Allentown since 1905, plans to replace its Allentown plant with a modern one. Allentown produces 52 trucks a day, but the planned factory would produce 70 a day, company officials said.
The decision to close the 60-year-old Allentown plant was announced at 3 p.m. yesterday, several minutes after company chairman John B. Curcio and Bill Casstevens, the UAW's vice president for Mack Trucks, had spoken by phone. The conversation, said McCullough, was a last-minute attempt to reach an agreement.
The company first announced its intention to replace the Allentown plant in late October, at the same time that it revealed a net loss of nearly $65 million for the third quarter of 1985.
The relocation would be necessary, the company said, unless union workers accepted deep cuts in wages and benefits. Mack employees, who make an average of $23 an hour in wages and benefits, were asked to accept company-proposed wage concessions averaging $3.85 an hour.
UAW officials refused to consider that demand, saying it would mean heavy losses in pay and benefits for employees. Mack said that it had given the union the option of taking smaller cuts in pay and benefits than the company had earlier proposed but that union representatives had rejected the idea.
Instead, the union created its own plan. Besides helping to finance a new assembly plant in the Lehigh Valley, the employee investment also was intended to help pay for a $100 million, five-year capital-investment program at Mack's truck-component factory in Hagerstown, Md.
Mack officials said yesterday that they would subcontract much of the work done at the Hagerstown plant to other manufacturers, because it had not obtained the salary reductions it sought from the UAW, which also represents those workers.
On Friday, union officials were pessimistic that the Allentown plant could be saved.
"But you can paraphrase Yogi Berra's phrase, 'It's never over till it's over,' " said Jack Derry, an international representative for the UAW.
McCullough said yesterday that any further attempts to save the Allentown plant "would have to be made between the chairman of the board of Mack Trucks and the vice president of the UAW."