AFSCME 3357-HOF'S BLOG

Breaking News: China's Chery May Buy Chrysler Transmission Line

Autoweek reports that China's Chery Automotive is working on a deal to buy DaimlerChrysler's 4-speed automatic transmission line and have it shipped from Kokomo Indiana to China lock, stock & barrel. This type of deal is called a "lift and shift". I've written about it before. Until now, the most prominent example in the auto industry was the transfer of BMW's Brazilian engine line to China.

The Chrysler transmissions in question are just starting to be replaced in North American Vehicles by a new 6-speed Ultradrive transmission, also built in Kokomo. In the past, Chrysler has had trouble with its new transmissions, including (and especially) the 4-speed Ultradrive line that Chery is purchasing. Now the outgoing line has at least average reliability, but its efficiency lags that of newer competitive designs. Although at first blush this deal seems no more than DC getting salvage value out of an obsolete asset, such may not be the case. Given that the recently-introduced Chrysler Sebring has not been weaned from the old 4-speed, it is likely that Chrysler will be using the transmission for at least four years. There is no word on the when the Chery move is to take place, but it is highly possible that Chrysler will import some transmissions from Chery. Secondly, once the Chery line is up and running, DC can compare price and quality to the Kokomo-built transmissions. If the comparison is favorable to Chery, more work could be sent to the Far East.

Even though the old transmission is not state-of-the-art, the deal appears to be a great one for Chery. Freed from the constraints of developing a transmission from scratch, then working out the bugs, Chery can crank out more cars for the American market sooner rather than later. DaimlerChrysler appears to be keen to exploit this, and may import a small car built by Chery to be sold as a Dodge. Newer transmissions on competitive cars might only yield a 5-10% advantage that can be tuned to favor fuel economy or performance. In the case of fuel economy, such an advantage may worth as little as $50.00 per year on a 4-cylinder car. If Chery applies traditional Chinese pricing practices, this disadvantage can easily be overcome.

Interestingly, even though Autoweek broke the story yesterday, the Kokomo Tribune and the Indianapolis Star have not yet picked up on it as of this morning. This seems out-of-place considering DaimlerChrysler may perform a Cross-your-heart Bra move on Kokomo, lifting and separating the city from one of its most important industrial assets.