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How will Chrysler fare in China after leaving BBDC?

George Gao From Gasgoo.com| September 04 , 2008

Shanghai, September 3 (Gasgoo.com) The three sides of Beijing Benz-DaimlerChrysler Automotive Co., Ltd. (BBDC) have reached an agreement over Chrysler's withdrawal from the multi-party joint venture. The several parties are now in serious talks over compensations for Chrysler and Beijing Auto. Chrysler will be officially quit the venture by the end of this year, said an insider.

Reportedly, Daimler-Benz Ag and Beijing Auto have agreed to compensate for Chrysler's investment in sales network, $3 billion production line construction, affected brand and stockpiled components. Daimler-Benz also has to make up for Beijing Auto's investment in the production line and to relocate Beijing Auto's employees in the joint venture. The plan for Chrysler to leave BBDC will be likely announced later this month.

Talents from Chrysler are gradually leaving BBDC, only a few technicians are staying behind to supervise the production of Chrysler 300C and Chrysler Sebring. The two Chrysler models may have their manufacturing in Beijing suspended, but Chrysler Asia has denied this saying, adding that BBDC will continue making the two Chrysler models by means of technical cooperation.

A Beijing dealer of Chrysler believed that even if Chrysler quitted BBDC, the 300C production line would not be withdrawn and would not cease, or Chrysler decided to leave the Chinese market.

Data show that there was a sales volume of just 2,654 Chrysler 300C sedans with a 17% drop year on year in the first half of 2008, and an output of 822 300C sedans. Consequently, the venture was once rumored to stop making 300Cs.

Actually, back in August 2007 when DaimlerChrysler sold Chrysler to Cerberus Capital of the U.S., the status of Chrysler in BBDC had been relegated to no more than "technical cooperation." In a joint venture that targets at the high-end market, the poor sales of Chrysler models have eroded its brand appeal.

After quitting the Beijing venture, Chrysler's China operation will be put into an awkward position like Fiat and Mitsubishi. The three global carmakers have unsuccessful ventures in China for lack of three key factors for success in China: a powerful Chinese carmaker as its partner, local production of models with precise market orientation, and a competitive Chinese supply system.

As a junior of the three Detroit auto-making giants Chrysler LLC should know much about how its fellow carmakers General Motors and Ford Motor have become successful in China, but it is impossible for Chrysler to copy the China operations of GM and Ford, whose success has relied less on the introduction of their U.S. models to China for local production.

Chrysler has been seeking new Chinese partners for its growth in the fast-growing China market. The U.S. automaker has reportedly negotiated Chery Auto and Great Wall Motor over the establishment of auto joint ventures that will have good "guanxi" (relationships) with the government and sound supporting facilities, which can ensure the venture will have a smooth journey.

If it has found a strong supportive Chinese partner, Chrysler is expected to build up a research and development center in China for the local production of Chrysler models that are most needed in the Chinese market, especially its small cars.

However, Chrysler will also possibly allow Chinese suitable carmakers to make Chrysler-badge small cars to expand its product lineup in China's auto market.

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