DaimlerChrysler to Import Chinese-Built Chryslers to North America?

GM Already Powers Chevy Equinox with Chinese-Made V6 Engines

Alarm bells started ringing in Detroit when Ruediger Grube, head of DaimlerChryslers Chinese division announced that

his organization may build new Chryslers destined for the North American market.

"We would like to establish here in China an export joint venture for Chrysler products," Grube told reporters on the sidelines of the Shanghai auto show. "Today we are not talking about Europe. We are talking about North America."

Later, during an interview with Reuters, Grube declined offer more detail about the plan.

"Exploring the idea and actually doing it are worlds apart," he added. "We are being very cautious on this because we see how quickly market conditions can change, in China as well."

Its not like the potential for such an announcement was unexpected, but more like someone with a terminal disease being told that he only has three months to live. In other words, it was inevitable that a North American-based automaker would eventually consider building its compact models in China, and exporting them to its home market.

After all, the North American manufacturing industry has been under siege from foreign markets with cheaper labor costs for years, but the domestic auto industry seemed sacrosanct, or at least it was previously thought that the Big 3 would refrain from importing new models from China in an effort to compete.

But the times, they are a changin. The Big 3, especially General Motors and Ford, are struggling with a myriad of problems, not the least of which is delivering well made, well priced mainstream vehicles to a populace that truly wants to buy them for what they are, not for any incentive added to the bottom line. The number one selling sedan in the U.S. is not a Chevy Impala or Ford Taurus, or, despite its recent success, Chryslers 300. No, its the Toyota Camry with Hondas Accord following closely behind.

How to fight off the imports? Become one, of course. The debate is on, however, as to what must be done in order to remain competitive, including whether or not components

and/or entire cars can be imported from the Far East without causing more pain than gain for the domestic producers. Taking advantage of lower cost wages, fewer employee benefits and a complete lack of trade unions initially sounds like a recipe for success, but many market analysts feel that the opposite is true, however.

This move would without doubt rupture brand loyalties of those who traditionally purchase domestic cars, the "Buy American" crowd that live and work in the manufacturing belt of the American Mid-West especially.

GM doesnt advertise that its popular new Aveo subcompact, also sold as the Pontiac Wave and Suzuki Sprint+, is made in South Korea in its GMDAT plant. Essentially its a Daewoo, as are the bowtie divisions Optra and Epica models.

Also, the worlds largest automaker already uses Chinese-made 3.4-liter V6 engines in its Chevy Equinox, as it will in the upcoming Pontiac Torrent. The deal involves Shanghai GM, the automakers Chinese division, Shanghai Automotive Industry Corp., and CAMI Automotive Inc, the domestic automakers Canadian-based joint venture with Suzuki Motor Co. of Japan.

"This is a further example of how GMs global alliance and partnership strategy are giving us the flexibility to use existing capacity at facilities like Shanghai GM for the benefit of car buyers in other parts of the world," commented Philip Murtaugh, chairman and chief executive officer of GMs China operation when the deal was struck in 2002.

Shanghai GMs president Chen Hong commented, in a November 5, 2002 report by China.org.cn, that the joint-venture engine exports would be an important step towards the joint ventures goal to become a globally competitive automaker.

"Only by becoming part of the worldwide automotive industry and using our parent companies strengths can Shanghai GM and Chinas automotive industry thrive in the face of growing competition," Chen said.

At the time, the joint ventures production facility had an annual production capacity of 180,000 V6 engines, 75,000 L4 engines and 100,000 automatic transmissions. It was also building 2.5- and 3.0-liter V6 engines for domestic use.

So, with GM already exporting Chinese made components to North American destined products, there is reason enough for Chrysler to look to offshore production opportunities, especially considering that the automaker doesnt compete as well as GM does in the compact class. It cant turn to Europe, where its DaimlerChrysler parent company is currently struggling to come to grips with high labor costs, short work weeks and some of the most generous worker benefits in the world. North Americas manufacturing sector isnt that far off from Germanys, with the automakers working hard to get concessions from the unions that appear to be crushing any potential for profits.

Of course, the United Auto Workers have a different take on that story, but it hardly will matter what that is in the end, if the Big 3 start producing more cars in Asia. They cant compete from a labor standpoint, as Chinese car assembly workers cost around $1.96 (1.50 euros) per hour, a fraction of the $49 (38 euros) per hour their German counterparts make and the $36 (28 euros) U.S. workers earn.

At a glance, it only makes sense for Chrysler Group to build its next-generation compact models outside of North America, considering that some of its core competitors enjoy more cost effective production arrangements overseas. Of course the automaker would want to reduce expenditures and deliver a competitive world car, especially in the lower end of the market.

For the time being, however, DaimlerChrysler is only talking with an existing Chinese partner in hopes to set up a joint venture that would produce and then export a Chrysler, Dodge or Jeep vehicle to North America. The talks, however, are hardly light discussion, but more so, in-depth analysis that will require a decision to be made by the second half of 2005, according to Chryslers Chinese division.

If an arrangement to build new vehicles in China to be sold into North America was struck, the German-owned domestic-North American based automaker would be the first Western firm to set up export-oriented manufacturing plants in China. Honda was the first Japanese automaker to initiate this trend.

In an effort to quell a backlash from workers and union heads, Grube noted

that the cars it is considering producing in China wouldnt affect its current workforce.

"Were not talking about (making) current products," said Grube. "We are talking about a totally new segment."

That segment may include a new subcompact model, to do battle in an ever growing segment critical for pulling first time new vehicle buyers into the Chrysler Group family. The automaker has looked at the possibility of aligning with DaimlerChryslers smart division, which builds its forfour subcompact in the Netherlands alongside Mitsubishis award-winning Colt. While a rebranded Colt would fit the bill, the cost of manufacturing an entry-level vehicle in Europe is once again, simply out of the question.

Currently, DaimlerChrysler is targeting a $1.6 billion (1.2 billion euro) investment in China over the next

five years, to strengthen its vehicle manufacturing operations. If the automaker plans to go ahead with the Chrysler export venture, it would need to increase its planned investment amount.

More investment in the Chrysler Group side of DaimlerChryslers Chinese business makes sense, however, as the automakers premium Mercedes-Benz brand only saw sales increases of 3 percent in Q1 of 2005, while Chrysler sales improved by 46 percent in the first quarter.

Its Chinese venture partners include Beijing Automotive Industry Holding Co., Fujian Motor Industry Group and China Motor Corp. It is also in the process of establishing a new joint venture with Beiqi Foton to make trucks, engines and parts for the Chinese market.