DaimlerChrysler to boost parts purchases in China http://today.reuters.com/investing/FinanceArticle.aspx?type=businessNews&storyID=2006-06-02T093708Z_01_L02532118_RTRUKOC_0_US-MANUFACTURING-CHINA-DAIMLERCHRYSLER.xml
Fri Jun 2, 2006
SHANGHAI (Reuters) - DaimlerChrysler AG (DCXGn.DE: Quote, Profile, Research) plans to boost its purchases of China-made auto parts eightfold by 2008, the carmaker said on Friday, joining the rush for low-cost local content in the fast-growing Chinese market.
The company will spend about $840 million buying components in China in 2008, up from the current annual amount of about $100 million, Till Becker, chief executive of DaimlerChrysler's northeast Asia region, said in a statement.
China and its major trading partners are locked in a dispute over high import tariffs on auto components.
Beijing imposes tariffs of around 28 percent on foreign parts -- about double the normal rate -- if they account for 60 percent or more of a vehicle's value.
This is proving expensive for foreign makers of some luxury brands such as DaimlerChrysler's Mercedes-Benz and BMW (BMWG.DE: Quote, Profile, Research), which rely heavily on imported components.
DaimlerChrysler is making Mercedes cars on a small scale in a Beijing plant, and wants to raise annual capacity to 25,000 cars by the end of 2006. "As we continue to expand production of passenger cars and commercial vehicles in China with our partners, the amount of parts and components we are sourcing in China will increase exponentially," said Becker.
DaimlerChrysler executives told Reuters last month that they hoped for a resolution of the tariff dispute, but were committed to boosting local content in any case.
Rival German carmaker Volkswagen (VOWG.DE: Quote, Profile, Research) said in March it aims to sign contracts by the yearend to quadruple to $1 billion annual purchases of parts from low-cost suppliers in China, exerting pressure on VW's German components plants to cut costs.
VW aims to ensure its Chinese operations buy 80 percent of their content locally by 2008.
Even though Washington and Brussels are crying foul over China's high tariffs on foreign auto parts, big global components makers such as Robert Bosch (ROBG.UL: Quote, Profile, Research), Delphi Corp (DPHIQ.PK: Quote, Profile, Research) and Visteon Corp (VC.N: Quote, Profile, Research), aren't kicking up a fuss.
Leading parts suppliers and most carmakers say tariffs pose little threat. Some privately say the policy even helps keep smaller rivals out of China's crowded $19 billion parts market.
Industry players note that the flow of business toward markets with cheap labor and cost structures -- and, in China's case, union-free -- is only natural, especially as carmaker clients bulk up their Chinese manufacturing.
-- Additional reporting by Michael Shields in Frankfurt
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