Carmakers team up to manage engine factory in United States

Chrysler, Mitsubishi and Hyundai to split costs

January 03, 2003|By BLOOMBERG NEWS

LOS ANGELES - Chrysler will manage a new engine factory in North America in a joint venture with Mitsubishi Motors Corp. and Hyundai Motor Co. that will add jobs at the DaimlerChrysler AG unit.

The companies will split the cost of the plant, which will likely be new rather than a retooled factory at an existing site, Chrysler Chief Executive Officer Dieter Zetsche said in an interview yesterday before the Los Angeles auto show. A new factory may cost about $1 billion, analysts estimate.

The new plant will produce about 600,000 engines a year as part of the joint venture's plan to provide the partners with 1.5 million motors annually for subcompact cars starting next year. A new factory may allow the company to recall some workers laid off as 26,000 jobs were cut the past two years in an effort to return to profit after seven quarters of losses.

"It's really a necessary move for them to build engines together because there's not a lot of money to be made in small cars," said Eric Merkle, a forecaster at Grand Rapids, Mich.-based IRN Inc., which predicts auto production for suppliers.

Chrysler used alliances among measures to lower development costs to $6 billion last year from an average of $8 billion over each of the previous five years, Zetsche said.

The partners expect to select a U.S. site to make the four-cylinder engines in the next three months, and the plant will supply vehicles produced by all three companies, Zetsche said.

The alliance lets the partners "optimize this engine and not be compromised by cost considerations," he said. The joint venture will share the cost of three factories. Some analysts had expected Hyundai to be chosen for the North American site and attach it to a vehicle plant under construction in Alabama.

Hyundai Motor, 10.5 percent-owned by Stuttgart, Germany-based DaimlerChrysler, will start making engines next year in South Korea, while Japan's Mitsubishi Motors, 37 percent-owned by the German automaker, expects to build versions starting in 2005.

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