Chrysler opens the door for Chinese
Those tread marks Asian automakers have been laying across the landscape got bigger Tuesday as Toyota Motor Corp. said it would build its next North American assembly plant in Mississippi and DaimlerChrysler approved a plan to start selling Chinese-built cars in the U.S.
The subcompacts would be the first Chinese vehicles sold here and probably open the door for other Chinese automakers.
The announcements underscore the changing nature of an industry once dominated by automakers in and around Detroit.
Derided in the 1960s by executives at General Motors Corp., Ford Motor Co. and the then-Chrysler Corp. as copycats unable to build quality cars that Americans would buy, Asian brands today control almost 40% of the U.S. market.
Toyota is widely expected to supplant Ford as the nation’s second-largest auto company in sales this year after posting a 12.5% gain to 2.5 million cars and trucks sold in 2006 in the U.S.
The Japanese auto juggernaut is adding the $1.3-billion Mississippi factory -- and is expected to build even more North American plants in the future -- as it scrambles to keep up with its growth and further integrate in North America by cutting the number of vehicles it must import from Japan.
Motoring in the opposite direction, DaimlerChrysler’s U.S. arm, Chrysler Group, posted a $1.5-billion loss last year and saw U.S. sales shrink 7%.
Chrysler has joined GM and Ford on the downsizing trail and sees the deal with China’s Chery Automobile Co. as a cheap way to enter the growing entry-level compact market.
The American automakers have been unable to compete in the segment because of low profit margins and the higher cost of building cars in the U.S.
“What we’re seeing here is more of the same,” said Catherine Madden, a Lexington, Mass.-based auto industry analyst at economic consulting firm Global Insight.
“Toyota is making a smart move” by building a new factory in a low-cost, nonunion state, while cash-strapped Chrysler seeks to move away from its high-cost, unionized U.S. production by looking overseas, Madden said.
Chrysler Group, best known for its gas-guzzling big trucks and high-performance V-8-powered cars, outlined plans this month to trim 13,000 U.S. and Canadian workers from its payroll. The company, based in Auburn Hills, Mich., also plans to close a Delaware sport utility vehicle plant and trim production at several other U.S. factories in the next three years as it tries to bring costs and production in line with demand.
German parent DaimlerChrysler is exploring the possibility of selling or spinning off its ailing U.S. arm, which it acquired in 1998. But the disposition of Chrysler Group isn’t expected to upset its agreement with Chery, disclosed in December and still subject to Chinese government approval.
The pact calls for Chrysler to work with the Chinese company to design and engineer subcompact cars. The vehicles would be built by Chery in China and exported and marketed under the Chrysler Group’s Jeep, Dodge and Chrysler brand names in the U.S., Canada, Mexico and Western Europe. Neither company is making an equity investment in the other.
DaimlerChrysler executives said Tuesday that they expected the Chinese government to approve the agreement by the end of March.
Chrysler Group Chief Executive Tom LaSorda has said that cars from Chery could start arriving in 2009.
The Chery-built cars would compete in the same entry-level compact and subcompact segment dominated by models from Japan and South Korea: sub-$16,000 vehicles such as the Korean-built Aveo from GM’s Chevrolet brand, Toyota’s Yaris and Scion xA models, Honda Motor Co.’s Fit, Nissan Motor Co.’s Versa and Kia Motors Corp.’s Rio.
Tom Libby, a Troy, Mich.-based auto industry analyst at J.D. Power & Associates, called the deal a win-win situation, enabling an ailing Chrysler to grow without much expense and Chery to reach the U.S. with cars designed and engineered by a company that knows what it takes to compete here.
“I haven’t seen any home-built cars by a Chinese company that could compete in quality and fit and finish with the Japanese and European small cars already sold here,” said analyst George Peterson of AutoPacific Inc. in Tustin. “But the Chinese have shown they can build quality if they have a blueprint, and that’s what they’d get from Chrysler.”
Toyota has grown in North America largely on its reputation for quality. But it has become worried in recent years that its success could prompt political and marketplace backlashes as it begins overshadowing shrinking U.S. automakers.
Last year, Toyota imported 1.18 million cars and trucks from Japan -- the most ever by a Japanese company. It sold 2.8 million vehicles throughout North America, building 1.5 million at its six U.S., Canadian and Mexican plants.
With a seventh plant under construction in Canada and a deal to use excess capacity at Subaru’s Indiana plant this year to build Camry sedans, Toyota expects to boost North American production to 2 million vehicles by the end of 2008.
The Mississippi plant, expected to be operating by 2010, would increase the total to 2.2 million.
Toyota’s oft-stated goal is local production of at least two-thirds of the vehicles it sells in North America. Honda and Nissan each locally produce about 75% of the vehicles they sell in North America.
With the Mississippi plant, “Toyota is well on the way to being a fully American manufacturer,” Peterson of AutoPacific said. “It will be able to counter the idea that it may be hurting the domestic manufacturers, by pointing out that it makes its vehicles here and is directly and indirectly responsible for hundreds of thousands of jobs here.”
Toyota, which announced the new plant at a Tuesday morning news conference in Tupelo, Miss., birthplace of Elvis Presley, said the facility would employ at least 2,000 workers to assemble 150,000 Highlander SUVs a year.
The 1,700-acre site in Blue Springs is about 20 miles from Tupelo and 200 miles northeast of Canton, site of Nissan’s Mississippi truck plant. It would be one of nearly a dozen major assembly and parts plants that foreign-based automakers have built in the Southern states in the last 24 years.
Mississippi, which lured its first auto plant in 2002 when Nissan selected Canton for its full-size pickup and SUV factory, agreed to provide Toyota a package of site preparation and job training assistance worth $296 million, Toyota North America President Jim Press said.
