New plant will help D/C reduce costs in China

Alysha Webb | Harald Hamprecht | Automotive News Europe / October 2, 2006 - 1:00 am BEIJING -- DaimlerChrysler wants to strengthen its relations with suppliers in China to help lower production costs at its new plant here.

"Localization is the right thing to do. It is in our best interest," DaimlerChrysler Chairman Dieter Zetsche said during the plant's opening ceremonies on September 15.

Until 40 percent of the parts for its China-made models are sourced

locally, DaimlerChrysler will face a higher tax on each car it builds.

The Beijing factory includes two assembly lines -- one for the Mercedes-Benz brand and one for the Chrysler and Mitsubishi brands.

The plant began assembling the Mercedes E280 last December, and will begin assembly of the Chrysler 300C in November.

Beijing Benz-DaimlerChrysler Automotive, DaimlerChrysler's joint venture with Beijing Automotive Industry Holding, is paying a high import tax on the Mercedes and Chrysler models.

Both are still being produced from imported kits, and the Chinese government a few months ago began taxing kits at the same 25 percent rate charged on entire car imports instead of the 10 percent rate for components.

Chrysler models should achieve 40 percent local content by 2008, Zetsche says. Reaching the 40 percent point with Mercedes will take longer, he admitted without being more specific.

Finding local suppliers that can meet international standards for luxury car models has proven challenging to all automakers in China. General Motors recently stopped local assembly of the Royaum sedan partly because of the high tax rate.

Still, DaimlerChrysler is sticking to its production plan, Zetsche says.

Late last month, DaimlerChrysler certified 60 new suppliers to provide parts to its Beijing plant.

Half of the partsmakers are from China and the rest are from surrounding region, a company spokesman said. The plant's initial production volume will be 105,000 -- 25,000 for the E class and the rest for the 300C and Mitsubishi's Outlander medium SUV.

Assembly of Mercedes C-class sedans will begin in 2007, says DaimlerChrysler. Suppliers say assembly of the Chrysler Sebring sedan will also begin in 2007 in Beijing, though DaimlerChrysler China spokesman Trevor Hale would not confirm the plan. The automaker is investigating whether it can add production of the Jeep Compass and Patriot as well as the Dodge Caliber.