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Published: Friday, 4/22/2005

Daimler goal: China car exports

BY MARY-BETH McLAUGHLIN
BLADE BUSINESS WRITER

The statement was shocking in its candor: DaimlerChrysler AG is in talks with a partner to build a plant in China to export vehicles to the United States because the wages there are so much lower than here.

"China today has a big, big, big advantage as far as labor costs are concerned," Ruediger Grube, a DaimlerChrysler executive vice president and head of the company's Chinese operations, told reporters yesterday at the Shanghai Auto Show.

Estimates put the labor cost in the Chinese auto industry at $1.50 to $1.95 an hour, compared to as much as $60 an hour in wages and benefits that skilled tradesmen can make at union plants in the United States.

The response was swift from the United Auto Workers union in Detroit, which represents tens of thousands of Toledo-area auto workers and which put out an angry statement. China's treatment of workers and manipulation of its currency are unfair trade practices that the United States should not tolerate, said UAW President Ron Gettelfinger.

The low-wage competition should worry workers everywhere, he said. "It's a concern for everyone, because the global economy cannot be sustained if this race to the bottom drives down wages for workers everywhere."

Bruce Baumhower, president of the UAW Local 12 at the Toledo Jeep Assembly Plant, said he was disappointed with Mr. Grube's comments, but thinks Toledo has new facilities and could be in good shape to get more auto work.

"I still think that we're in a position to continue to expand here in Toledo," he said. "The Big Three - Ford, GM, and Chrysler - are spending $10 billion in China and, luckily, Chrysler has already spent $3 billion here. Somebody's going to keep building vehicles in the United States, so it may as well be Toledo, Ohio."

The Toledo North plant, built in the past five years, involved a $1.2 billion investment, and a new plant next door and expansion project now under construction are part of another $2.1 billion invested. The new facility will enable Toledo Jeep to make four vehicle models, twice what it makes now with Jeep Wranglers and Libertys.

Still, some global car manufacturers worry that cheap made-in-China cars will someday swamp markets. And the announcement comes as the United States and other developed countries have complained about low-cost Chinese clothing and other goods threatening U.S. industry and manufacturing jobs.

Asked about a potential political backlash in the United States - home to the Chrysler and Jeep brands - Mr. Grube said, "We're not talking about (making) current products. We talking about a totally new segment."

DaimlerChrysler officials said the China factory would produce subcompact cars, about the size of the Chevrolet Aveo, if a deal can be worked out with one of its partners, which officials identified as Fujian Motor Industry Group.

But some auto industry experts said the German automaker's plan for China exports may not be dire.

"They're not going to be making Jeep Libertys there, they're not going to be making Wranglers there," said Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor. "I mean, Beijing Jeep is getting crushed."

DaimlerChrysler partners with Beijing Automotive Industry Holding Co. Ltd. to make a form of Jeeps for sale in China.

Instead, analysts said, DaimlerChrysler most likely is looking for a replacement for its Smart car, a vehicle made in Europe that is half the length of a normal car. The company planned to introduce it to the United States, but plans were scrapped in part because of costs to meet U.S. standards.

"They were looking to sell a vehicle for under $8,000, roughly 50,000 to 60,000 of them, to U.S. drivers interested in fuel economy and who would only drive it in the city," Mr. McAlinden said.

Industry experts said the costs of producing a vehicle in China are higher than making a vehicle in the United States, considering logistics, the supply network, and import tariffs.

Still, the proposed plant using low-wage workers would have serious repercussions for U.S. auto workers if other companies followed DaimlerChrysler's lead, said David Siino, an analyst with Gabelli &Co. in Rye, N.Y.

"Being a U.S. citizen, it's a little distressing to me that our manufacturers are being priced out of existence," Mr. Siino said.

The Blade's wire services contributed to this story.

Contact Mary-Beth McLaughlin at

mmclaughlin@theblade.com

or 419-724-6199.



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