Thursday, April 21, 2005

2005 Shanghai auto show

DaimlerChrysler considers exporting Chryslers from China

By Christine Tierney / The Detroit News

Chinese Chrysler DaimlerChrysler is in talks to build Chryslers in China for export. Would you buy a Chrysler from China? Yes No Get results and comments Comment on this story Send this story to a friend Get Home Delivery

DaimlerChrysler AG's top China strategist triggered an uproar Thursday when he said the automaker was exploring the possibility of making vehicles in China for export, including a subcompact for the Chrysler Group's U.S. lineup.

But in a confusing twist, Chrysler denied that the company was studying plans to make a small car in China for sale in the United States.

The subject is politically fraught, with U.S. automakers increasing purchases of low-cost components made in China but hesitant to bring Chinese-built vehicles to the United States, where they have excess car-making capacity.

But now that U.S. automakers are struggling financially, they are under increasing pressure to become more competitive by shifting production to China, where wages can run as low as $1 an hour, and other low-cost regions.

General Motors Corp. produces the engine for its Equinox minivan in China, but it sells its Chinese-made vehicles in China. Honda Motor Co. is building cars in China for export to Europe. But so far, the only publicly announced plan to bring Chinese cars to the U.S. market is automotive entrepreneur Malcolm Bricklin's project to import cars built by China's Chery Automobile Co. starting in 2007.

At the Shanghai auto show, DaimlerChrysler's board member responsible for its China activities, Ruediger Grube, told reporters the automaker was studying plans to build a small car in China -- smaller than the Dodge Neon -- for the Chrysler Group.

"We would like to establish here in China an export joint venture for Chrysler products," Grube told Reuters. "Today, we are not talking about Europe. We are talking about North America."

Grube declined to estimate the probability that the plan to make compact cars would go ahead.

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

Asked about a potential political backlash in the United States, Grube said: "We're not talking about (making) current products. We are talking about a totally new segment."

His remarks appeared to take Chrysler officials in Auburn Hills by surprise.

"We are not looking at a B-segment car that would be built in China and shipped to the United States for the Chrysler Group," Chrysler spokesman Jason Vines said.

Grube's remarks provoked a sharp reaction from the United Auto Workers union. "DaimlerChrysler's unex pectedly candid statement about the so-called advantage of low labor costs in China reveals worlds about what is wrong with today's global economy," said UAW President Ron Gettelfin ger.

"U.S. autoworkers are prepared to compete with workers anywhere in the world based on productivity, quality and innovation. But it's just plain wrong -- for workers in China as well as the United States -- to force workers to compete against each other based on who can do a job for the lowest possible wage," Gettelfinger said.

Thursday's flap, which revealed the occasional disconnect between the automaker's Stuttgart and Auburn Hills headquarters, was also awkward because of the timing. The Bush administration, concerned about China's rising trade surplus with the United States, is starting to take a harder look at China's commercial practices.

But the administration also signaled recently that Detroit's auto makers need to become more competitive to solve their problems. DaimlerChrysler executives previously said that they were exploring the possibility of building vehicles in China, not only for the large local market but also eventually for export, taking advantage of low costs and wages.

"Down the road, anyone who would build there would think of exporting," Vines said.

DaimlerChrysler now builds several thousand Jeep vehicles in China and plans to assemble Mercedes C- and E-Class sedans in the fall with longtime local partner Beijing Automotive Industry Holding Co. Ltd. But the Stuttgart, Germany-based automaker has been cautious about the Chinese market and its invest ment plans -- $1.6 billion over three to five years -- is modest compared with the sums earmarked by its global rivals.

Beijing Automotive's more recent venture partnership with Hyundai Motor Co. has grown much faster than its activities with DaimlerChrysler.

In 2003, relations among the three companies became strained when South Korea's Hyundai said Daimler Chrysler's plan to build Mercedes cars with Beijing Automotive breached its own exclusive agree ment with the Chinese automaker. Last year, DaimlerChrysler shed its 10 percent stake in Hyundai, after deciding to bail out out of Mitsubishi Motors Corp., its ailing Japanese part ner.

Left with a small presence in Asia, the Stuttgart, Germany-based auto maker sharpened its focus on China. Last year, it sold 11,500 vehicles in Chi na, the world's third-largest vehicle market.

As DaimlerChrysler aims to ex pand its business in China, "we are al so looking at other partners," besides Beijing Automotive, Vines said. DaimlerChrysler has a framework accord to produce trucks with Beiqi Foton Motor Corp. Ltd., whose big gest shareholder is Beijing Automo tive. It also produces vans with Fujian Motor Industry Group.

Reuters contributed to this story. You can reach Christine Tierney at (313) 222-1463 or ctierney@detnews.com.