Invest And Produce - Chrysler Group’s China Strategy

Just two weeks after starting his new role as President and CEO of the Chrysler Group, Tom LaSorda reviewed the Company's plans in China and Taiwan this week unveiling three product programs representing an investment of $350 million. The Chrysler Group intends to produce Minivans in Taipei and Fuzhou, and the award-winning Chrysler 300C in Beijing all for local markets.

When combined with recently announced projects of DaimlerChrysler, the investment from the company and its partner for the region now totals $1.5 billion.

But LaSorda's trip focused on the Chrysler Group strategy in the region.

"Chrysler vehicles are known around the world for their combination of eye-catching design and outstanding value," said LaSorda. "From fashion to architecture to cars, take a look at urban China today and it's obvious that successfully combining bold design and superior value is a winning formula. Following the success we've had growing our business in the hyper-competitive North American and European markets, Chrysler is embarking on a new product offensive for Northeast Asia, led by our new flagship, the Chrysler 300C, along with the world's most popular minivan, and, of course, the venerable Jeep."

"Without a doubt, the automotive industry's greatest potential for growth in the next ten years is in Northeast Asia," said Dr. Ruediger Grube, Member of the Board of DaimlerChrysler AG, responsible for Corporate Development and China Operations.

"And DaimlerChrysler intends to be there with a major presence. The Chrysler Group's plan to add minivan and Chrysler 300C production to the region further complements DaimlerChrysler's overall strategy to expand production and sales of passenger cars, commercial vehicles as well as vehicle financing."

LaSorda started his Northeast Asia trip on September 14 in Taiwan, reviewing the Company's previously announced plans to license minivan production with China Motor Corporation (CMC), and create a joint venture between DaimlerChrysler Taiwan and CMC to manage sales and distribution of Chrysler Group vehicles, both for the local market.

The following day in Fuzhou, on mainland China's southeast coast, he announced the company's intention to license Southeast Motors (SEM) to produce Chrysler minivans for the mainland Chinese market. SEM is joint venture between CMC and Fujian Motor Industry Group (FJMG). DaimlerChrysler has established a separate joint venture called DaimlerChrysler Vans (China) Ltd. (DCVC) with both FJMG and CMC to produce Mercedes-Benz Sprinter and Viano Multi-Purpose Vehicles at a new facility, also in Fuzhou. Chrysler minivan production will take place at SEM's existing facility.

During the final stop of his trip in Beijing on September 16, LaSorda announced the intention to build the Chrysler 300C at the new joint venture, BeijingBenz-DaimlerChrysler Automotive Ltd. (BBDCA), for the Chinese market. During the press conference, LaSorda unveiled a giant moon cake, reminiscent of the moon cakes traditionally given for the Chinese Mid-Autumn Festival, which takes place during the full moon on September 18. The moon cake was lifted to dramatically reveal the new Chrysler 300C, the Company's Mid-Autumn Festival "gift" to the new joint venture.

BBDCA has been operational since its business license was issued last month. The 50:50 joint venture between DaimlerChrysler and BAIC is an expansion of Beijing Jeep Corporation, which produces and sells Jeep and Mitsubishi SUVs. BBDCA will also produce Mercedes-Benz E- and C-Class sedans at a new facility in the Beijing Development Area in the southeast part of the city. The former BJC will relocate from its current site downtown to a new facility adjacent to the new Mercedes-Benz production hall. The Chrysler 300C will be built in a new Chrysler production hall, starting in late 2006 at the new location.

The additional $350 million investment brings DaimlerChrysler and its partners' total investment in China to $1.5 billion, which includes:

In Beijing, with BAIC, production of Chrysler 300C, Mercedes-Benz E- and C-Class at the new joint venture (BBDCA); relocation of the "former BJC" to the new site, which includes production of Jeep and MMC vehicles; and with Beiqi Foton (in which BAIC has majority ownership), realizing production of medium and heavy duty trucks;

In Fuzhou, with CMC and FJMG, licensed Chrysler minivan production at SEM, and production of Mercedes-Benz MPVs at a new joint venture (DCVC); and

In Taiwan, with CMC, licensed Chrysler minivan production, and creation of a new joint venture for sales and distribution of Chrysler Group products (Chrysler Group Sales Taiwan Ltd.).

Mr. LaSorda has been a busy man since recently taking over the reins as President and CEO of the Chrysler Group from Dieter Zetsche, and he's got his work cut out for himself in Asia, but especially China. The world's fifth-largest automaker, DaimlerChrysler (DCX) to date has managed to carve out just a miniscule share of the automotive market in China, and LaSorda would definitely like to change that for the Chrysler Group that he now heads.

Last year, DaimlerChrysler began assembling Chrysler-brand cars in the new Beijing Jeep plant, initially assembling kits. At the time, DCX realized it would have to begin counting on the Chrysler brand to make DaimlerChrysler a true presence in China as its relationship with Mitsubishi continued to deteriorate. Beijing Jeep Corp., a DCX joint venture with Beijing Automotive Industry Corp., was counting on Mitsubishi brands for models to fill the new plant's production capacity. But, rather than gamble on an uncertain future with Mitsubishi, Chrysler will almost certainly become Beijing Jeep's new volume brand in terms of production.

LaSorda has been thinking a lot about the advantages of doing business in low-cost labor markets, where assembly plant workers make a fraction of what its hourly workers in North America are paid. That gives Chrysler or any automotive manufacturer, a definite advantage over its competitors, who also have been pouring billions of dollars into China to ramp up production there. Like its competitors, DCX is looking at ways of profiting from exporting low-cost China-built auto parts for use in its assembly operations around the world.

Before actually producing vehicles in China for that market, automakers often begin by importing models of cars that they plan to produce to seed the market, and DCX has done that, but on a very limited scale. The China market needs all the exposure it can get to stimulate the Chrysler name that is marketed as a stand-alone brand in China.

Market share and presence in China are a huge deal the DCX, especially in light of the fact that General Motors recently overtook Volkswagen to become the sales leader in China in the first half of this year. China is the world's fastest-growing market, and one of the only world markets expected to generate long-term growth. But doing business in China is not as lucrative as it once was, and profits are becoming slimmer as the market moves to smaller vehicles accompanied by smaller margins.

Proof of this is the fact that more than half of GM's sales come from low-priced minivans and commercial vans. Sales of most of its car models are slowing, but VW's car sales are slowing even more. On top of that, Korean and Japanese automakers are hotly pursuing GM.

It definitely sounds like there will be more Chrysler products in China designed and built specifically for that market, and a Chrysler built in China for the North American market is not outside the realm of possibility in the future. A lot of things to think about for Chrysler Group's new man at the top.


The Week's Top 5

At MCADCafé we track many things, including the stories that have attracted the most interest from our subscribers. Below are the five news items that were the most viewed during last week.

NASA Dryden Chief Engineer Marta Bohn-Meyer Dies In Airplane Crash
The crash of an aerobatic plane in Oklahoma has claimed the life of Marta Bohn-Meyer. Bohn-Meyer was chief engineer at NASA's Dryden Flight Research Center at Edwards Air Force Base, CA, and a widely known precision aerobatic pilot. Bohn-Meyer, 48, died when the Giles G-300 she was flying crashed as she was beginning an aerobatic practice routine near the C.E. Page Airport in Yukon, OK, a suburb of Oklahoma City. The crash is being investigated by the FAA. Bohn-Meyer had been employed as an aeronautical research and operations engineer at Dryden since 1979 following her graduation from Rensselaer Polytechnic Institute, Troy, NY, with a bachelor's degree in aeronautical engineering. She was appointed chief engineer at Dryden in October 2001 after serving in a series of increasingly responsible positions. These included director of flight operations, director of safety and mission assurance, deputy director of flight operations, deputy director of aerospace projects and project manager for the F-16 XL Supersonic Laminar Flow Control project. During her career at Dryden, Bohn-Meyer worked on a variety of research projects, specializing in flight test operations, developing test techniques, and laminar flow research. Among these projects were flight tests of space shuttle thermal protection tiles with a NASA F-104, B-57 gust gradient evaluations, and the F-14 aileron-rudder interconnect and variable sweep transition laminar-flow programs, in addition to her work on the F-16XL laminar flow project before becoming project manager.

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