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April 4, 2005

EXCLUSIVE: BRAZIL: Axe that swung over Smart Formore could also hit assembly plant

The future of DaimlerChrysler’s Brazilian plant in Juiz de Fora is now in doubt following the axing of the Smart Formore and an announcement that production of the previous-generation Mercedes A-class will stop soon.

The future of DaimlerChrysler’s Brazilian plant in Juiz de Fora is in doubt following the axing of the Smart Formore SUV and a subsequent announcement that production of the previous-generation Mercedes A-class will stop soon.

“The situation for the factory is serious. We have no news of another vehicle to replace the Formore project”, João da Silva, vice-president of the Juiz de Fora trade union, told just-auto.

The automaker has confirmed it will not make the new generation A-class in Brazil, and that means there’s no future car line to keep the Brazilian assembly line running.

Juiz de Fora employs 1,160 and can make 70,000 vehicles a year, but DC will build only 3,655 in 2005 before halting A-class production.

“We will study all the options for the plant,” said André Senador, DaimlerChrysler of Brazil communications director.

The portents are not good.

In 2001, after a global reorganisation of Chrysler brands, DC halted Dodge Dakota pickup truck production at its Campo Largo plant. Some months later, the automaker closed the factory opened only in 1998 at a cost of $US315 million.

Before the 2002 announcement that Juiz de Fora would build a Smart model, DaimlerChrysler had searched for a vehicle to improve the efficiency of the struggling factory.

The automaker evaluated cars from Hyundai and Mitsubishi (then its partners), but nothing resulted.

The plant subsequently had high hopes for the Formore which was to be built at a rate of up to 60,000 units a year, half for export to the US.

The SUV was to compensate for poor A-class sales in Brazil and would be the high volume model to justify DC’s $US820 million investment in building Juiz de Fora.

When DaimlerChrysler began construction in 1997, it expected to sell about 60,000 A-class in Brazil each year and also to export to other Latin America countries. 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 standard specification greatly increased the selling price.

The company also made a strategic error by demanding Mercedes dealers open separate showrooms for the A-class and not mix the new small car with the brand’s other more luxurious models.

The dealers had to invest a lot of money in their new stores and demanded more margin.

As a result, by the time the car was launched in 1999, the automaker had revised its sales forecasts to to just 25,000 units per year in Brazil. In 2000, the first and best full year of sales, only 12,000 were sold in Brazil and total production, including exports, did not reach 15,000.

After that production and sales fell every year – in 2004, less than 6,000 were made.

In a desperate move to increase the factory’s production volume, in 2001 DaimlerChrysler started assembling the C-Class sedan from German CKD kits at Juiz de Fora.

About 7,000 cars were built each year for the US and Canada. But assembly stopped at beginning of 2004, when the export contract ended.

When it stopped C-Class assembly in Brazil, DaimlerChrysler was confident it had found a saviour for the Juiz de Fora plant.

Now the Formore is no more, the same may soon be said of its factory.

Rogério Louro

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