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DaimlerChrysler Engine Venture Cuts Costs by $100 Mln

Feb. 11 (Bloomberg) -- DaimlerChrysler AG's Chrysler, Mitsubishi Motors Corp. and Hyundai Motor Co. cut the cost for two joint-venture engine plants in Michigan by $100 million, or 14 percent, by streamlining the design, the venture's chief said.

The Global Engine Manufacturing Alliance now expects the factories in Dundee, Michigan, to cost about $600 million, President Bruce Coventry said in an interview today. The first plant will begin full production Oct. 1 and the second will start in September 2006, with a total workforce of 500 people, he said.

``Making small engines in the U.S. means it has to be absolutely world class or they won't be able to compete with engines from Brazil or Mexico where they have lower costs,'' said Michael Robinet, a Farmington Hills, Michigan-based forecaster for CSM Worldwide.

Chrysler, Mitsubishi and Hyundai are working together to trim the cost of building as many as 1.8 million four-cylinder engines annually, including 840,000 in Dundee. They plan to jointly make 1.8-liter to 2.4-liter engines for small and midsize cars in Michigan and in Japan and South Korea.

Chrysler, the third-largest U.S. automaker, and Tokyo-based Mitsubishi, Japan's fifth biggest, will share the Dundee engines.

Hyundai Model

The automakers cut costs in Dundee in part by studying a South Korean engine plant Hyundai, that nation's biggest automaker, opened in March 2004, Coventry said. Engineers from all three companies have collaborated to trim expenses, he said.

``This has to be the model for Chrysler at all of its plants if it wants to compete,'' he said. ``Any advantage an automaker gets only lasts 18 months before others catch up.''

The Dundee factories are expected to reduce by half the time Auburn Hills, Michigan-based Chrysler needs to make an engine, said Tom LaSorda, the unit's chief operating officer, last year.

The world's fastest engine plant is a Toyota Motor Corp. factory in West Virginia, which in 2003 needed about 1.94 hours to build an engine, Coventry said. The Dundee plants will be faster than that, he said, without giving a specific time.

Making engines at the Dundee plants also will reduce annual costs for parts and materials by about $100 million, or 23 percent, from what Chrysler spends on its current four-cylinder engines built in Mexico, which have less technology, Coventry said. With those savings and other changes, the new engines will be about 30 percent cheaper than those built in Mexico, he said.

The Dundee engines will be 5 percent more fuel-efficient and provide more horsepower than current Chrysler four-cylinder models, Eric Ridenour, the automaker's head of engineering, said Dec. 16. The new engines will be used in 12 Chrysler models and in 25 models for all three companies combined, Coventry said.

Seoul-based Hyundai hasn't yet agreed to use engines from the Michigan plants, Coventry said. The two factories can expand total capacity to at least 920,000 engines if they needed to supply Hyundai, he said.

The U.S. shares of Stuttgart, Germany-based DaimlerChrysler fell 21 cents to $45.89 at 4:15 p.m. in New York Stock Exchange composite trading and have dropped 4.3 percent in the past year.
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