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DaimlerChrysler in talks with China

DaimlerChrysler is in talks to set up a joint venture in China that would make and export Chrysler cars to North America, an executive for the company says.

Ruediger Grube, head of the carmaker's Chinese business, says discussion with a prospective partner were advanced and a final decision on whether to go ahead is due in the second half of this year.

If Daimler and the unspecified partner decide to proceed, the German-U.S. company would be the first Western carmaker to set up export-oriented factories in the Asian country.

"We would like to establish here in China an export joint venture for Chrysler products," Grube says. "Today we are not talking about Europe. We are talking about North America."

In an interview with Reuters, Grube was guarded about plans to make compact cars.

"Exploring the idea and actually doing it are worlds apart," he says. "We are being very cautious on this because we see how quickly market conditions can change, in China as well."

Grube noted that Chinese car assembly workers cost around €1.50 (£1.02) an hour, a fraction of the €38 (£26) their German counterparts make and the €28 (£19.1) US workers earn.

But Adam Jonas, a Morgan Stanley analyst in London, says: “The costs of making a car in China today are still not competitive when factoring in logistics, the supply network and import tariffs, even though the labor costs are so low."

DaimlerChrysler plans to invest €1.2bn (£0.82bn) over the next five years to bolster vehicle manufacturing in China. Any investment in a Chrysler export venture would be a fresh investment and not part of that amount.

It undershot its Chinese car sales target last year amid Beijing's steps to cool demand, but sales including imports and local production with venture partners still rose by about a third to 44,900 units.

DaimlerChrysler's sales of premium Mercedes-Benz vehicles rose 3% in China in the 2005 first quarter, while Chrysler sales shot up 46%.



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