Chrysler opens new supplier-driven Jeep plant

Kevin Krolicki | TOLEDO, Ohio, Aug 28 (Reuters) - - Chrysler Group on Monday began production of a new Jeep at the first auto plant in North America where suppliers have taken over key areas of production to help contain costs for a major automaker.

Chrysler, a unit of DaimlerChrysler AG, began making dealer-bound versions of its 2007 Jeep Wrangler on Monday as a 100-acre supplier park began operations.

Chrysler Chief Executive Tom LaSorda, who championed the unusual partnership as a way to reduce capital investment and improve Chrysler's manufacturing flexibility, said the automaker would look at similar outsourced arrangements for other plants.

"Suppliers and (automakers) are going to team up where it makes business sense. Not just to do it, but where it makes business sense for all parties to do it," LaSorda told reporters.

Chrysler's Toledo Supplier Park began building both the 2007 Jeep Wrangler and a new four-door Wrangler Unlimited, off- road vehicles expected to compete with the Hummer H3 from General Motors Corp.

But the Toledo facility also has the flexibility to handle a future niche vehicle expected to sell less than 30,000 units per year or other Jeep variants, LaSorda said.

Chrysler sold about 79,000 Jeep Wranglers last year in the U.S. market and the brand's steady track record was one reason the automaker was able to bring in suppliers who will both collect fees based on production units and share in the costs if sales were to falter, LaSorda said.

"The reason we thought this one, we felt worked pretty good was that the Jeep Wrangler, going back 20 years in good times and bad, had pretty consistent volume," LaSorda said. "We're looking at the volume to be in a very steady range."

High gas prices have weighed on U.S. truck and SUV sales, including Chrysler's Jeep and Dodge lines, but LaSorda said he hoped fuel prices had retreated from their near-term peak.

At the same time, he said Chrysler would base its product plans on a scenario in which oil prices steadily increase over the next several years and gas prices could hit $4 per gallon.

"I would hope we've hit the peak," LaSorda told reporters. "But we are planning internally as if it's $3 or $4, what would we do."

KUKA Group, a unit of the German engineering and robotics company, is building the Jeep vehicle bodies. Magna International Inc. unit Magna Steyr is running the plant's paint shop.

Hyundai Motor Co. Ltd. affiliate Hyundai Mobis will assemble the vehicle chassis, while Chrysler has responsibility for the final assembly at the $900-million supplier park.

Chrysler also makes the Jeep Liberty and the upcoming Dodge Nitro in Toledo.

The collaborative production plan for the Wrangler, announced two years ago, drew strong support from the United Auto Workers union and Ohio politicians eager to keep the Toledo area from losing manufacturing jobs.

Under a ground breaking 2003 agreement with the UAW, Chrysler won a concession allowing it to outsource the chassis line, body shop and paint shop at a new Toledo plant, as well as jobs in other areas such as maintenance.

"The situation we faced was that these jobs were going to go to Mexico, we believed," Lloyd Mahaffey, regional director for the UAW said on Monday

Ohio kicked in an estimated $200 million in subsidies, including grants, financing and job training funds to encourage Chrysler to keep its Jeep production in the state, drawing a legal challenge that ended up before the Supreme Court.

In May, the justices ruled unanimously that the Ohio taxpayers who had sued claiming the state-funded tax incentives were illegal had no standing to challenge those government spending decisions.