According to DaimlerChrysler officials in Germany and Brazil, the automaker is looking at making a compact city car, possibly the Hyundai Atos, in its struggling Juiz de Fora plant, writes Rogério Louro Alves.

The sales director of DaimlerChrysler do Brasil, Roberto Bógus confirmed that the company would produce a new car in the plant in Minas Gerais state. And DaimlerChrysler board member Jurgen Hubbert said in an interview with the Handelsblatt newspaper that the automaker is considering the manufacture of a vehicle in Brazil in conjunction with Hyundai.

Building the tiny Hyundai would allow DaimlerChrysler to improve the efficiency of the struggling Juiz de Fora plant which is operating way below capacity.

The Atos, a one-litre, five-door hatchback, is currently imported into Brazil fully assembled. But, if locally built, it could compete in the one-litre segment that accounts for about 75 percent of car sales in Brazil and provide much needed additional volume for the plant.

The Juiz de Fora plant was built to make the Mercedes-Benz A Class, the company's first front-drive city car. When Mercedes began construction of the factory in 1998, at a cost of $US820 million, it expected to sell 60,000 of the new cars in Brazil alone and export many thousands more to other South American countries.

Hyundai Atos may be built in a Brazilian DaimlerChrysler plant

But a combination of the devaluation of the Brazilian real in relation to the US dollar, and the last-minute addition of electronic stability control to the A-class specification greatly increased the car's price. By the time it was launched in May 1999, Brazilian sales forecasts had been revised to just 25,000 units per year.

Last year only 12,005 A-class were sold in Brazil and total production, including exports, did not reach 15,000 units. To boost Brazilian production, and ease demand on over-stretched German factories, DaimlerChrysler this year added C-class production from German-made CKD kits at Juiz de Fora. The 7,000 units built a year are all exported to the US and Canada.

DaimlerChrysler also began a campaign to increase Brazilian A-class sales. The automaker launched additional versions with 1.9-litre engine and automatic transmission and did not increase prices for the 2001 model year.

However, sales have not increased. Between January and September this year DaimlerChrysler sold only 6,879 A class in Brazil and the Juiz de Fora plant built less than 10,000 of the model.

To compensate for poor A-class sales, the automaker desperately needs a high volume car to justify its investment.

DaimlerChrysler has already closed a Brazilian plant this year in Campo Largo, Paraná state. This plant, opened at a cost of $315 million in 1998, produced the Dodge Dakota pickup truck which also failed to meet initial volume projections.

Its closure left D-C liable to repay the financial incentives received from Paraná state to build it - about $US 50 million.

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