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Chrysler to sell European plant

PT Cruiser assembly moves from Austria to Toluca, Mexico

DETROIT - Six months after launching production of the PT Cruiser at its Eurostar plant in Graz, Austria, the Chrysler group said last week it will move assembly of the European version of the vehicle to Mexico.

The announcement came as it agreed in principle to sell the Eurostar plant to the Canadian Magna Steyr Group for an undetermined price.

The disclosure, a humbling admission that demand for the retro-styled car in Europe is far less than projected, comes as the automaker searches for more ways to raise cash to achieve its turnaround goal of breaking even in 2002 and returning to profitability in 2003.

According to a Reuters report, which cited a document obtained from Chrysler, the automaker has hired the Goldman Sachs investment banking firm to advise it on the sale of an unspecified number of its 24 North American parts plants.

Chrysler spokesman Mike Aberlich said he could not confirm how many plants the company was trying to sell other than Eurostar but said costs were under hard review companywide. "Everything is under review," he said. "The turnaround plan is solid and flexible, and market conditions are requiring that we continue to take a look at our costs."

Eurostar sale logical

Given Chrysler's need to slash costs and raise cash, analysts said the sale of the 100,000-unit-capacity Eurostar plant was logical because the company had greatly overestimated the appeal of the PT Cruiser outside the United States, where strong sales continue.

The U.S. version of the vehicle has been produced in Mexico since 1999.

In Europe, where Chrysler had projected annual sales of 50,000 annually as justification for producing in Austria, sales this year are expected to total about 30,000. The Graz plant, which began PT Cruiser production in July, has produced just 10,500 units since then.

In a bid to spur European demand, Chrysler was preparing to offer a 2.2-liter Mercedes-Benz common-rail turbodiesel beginning in March as an option to the poorly received 2.0-liter gasoline engine that is standard. The fate of the diesel is uncertain.

Voyager production shifted

"They didn't need to build the PT Cruiser in Europe because the demand wasn't there," said Peter Schmidt, principal analyst for AID in London. "Offering a diesel may spike sales 20 to 25 percent, but PT sales probably have already peaked in Europe."

Chrysler said Cruiser production will end in Europe upon closing the plant's sale to Magna, which the supplier has indicated is likely by mid-2002. Production of the European Voyager minivan, also built at Eurostar, will then be shifted to Magna's adjacent plant.

That plant produces the Jeep Grand Cherokee, Mercedes-Benz M-class and G-class sport-utilities, and the Mercedes-Benz E 430 4wd sedan.

Neither DaimlerChrysler nor Magna would discuss a potential price for Eurostar. Magna had owned part of the plant until June 1999, when DaimlerChrysler bought its share for an undisclosed price.

Chrysler is still studying whether it needs to add capacity at its Toluca, Mexico, factory after the sale of

Eurostar to Magna, said a Chrysler spokeswoman. The Mexico factory already is being expanded to meet U.S. demand, and its capacity will grow to 260,000 units annually by the fall of 2002 from 180,000 units a year at the beginning of this year.

Details on the sale of the Eurostar factory are sketchy because the deal with Magna was announced on the eve of the supplier completing its acquisition of Tesma International, a Canadian manufacturer of powertrain components.

Tesma deal nixed

Apparently deciding that buying Eurostar was a far better proposition than Tesma, Magna said Tuesday, Dec. 11, it was killing the Tesma deal and negotiating with Daimler- Chrysler. The announcement came the night before a shareholder meeting to approve the merger.

Magna had expected to begin talks about the sale of Eurostar next year, James Nicol, president of Magna International Inc., the Toronto parent of Magna Steyr, said in a telephone conference call with analysts.

But DaimlerChrysler "moved forward some elements of their restructuring plan" and approached Magna on Dec. 7, Nicol said. A deal was hammered out that weekend.

You can reach Diana T. Kurylko at dkurylko@autonews.com

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