Fiatsler's Dilemma: Build Engines In Michigan Or Mexico?
The engine in question is Fiat’s 1.4 liter “Fire,” planned for use in the Fiat 500 as well as planned Dodge and Chrysler B-segment hatchbacks. Automotive News [sub] reports that the Michigan Economic Growth Authority has authorized ten years worth of employment tax credits if Chrysler builds the engines at an unused plant in Dundee, MI. But the credits are only worth an estimated $4.6m, and MEGA admits that that building the engines in Mexico would be cheaper for Chrysler. The most important factor: the engine will primarily power the Fiat 500, which will be built in Toluca, Mexico. Since most of the 500s built in Toluca will be headed to the Brazilian market, Michigan engine production makes even less sense. And since there won’t be any other North American products using the 100 hp, 92 lb-ft engine until 2013 (if the Fiatsler experiment even makes it that far), there’s almost no reason for Michigan to build these engines. Still, with 250k units planned annually, it’s no wonder MEGA dangled tax credits anyway. Besides, there’s one more wrinkle: one of the ways Fiat can gain another five percent of Chrysler’s imaginary equity is to “manufacture state-of-the-art, next-generation engines at a U.S. Chrysler facility.” Fiatsler is bringing Fiat back to the US as a one-model-brand (500) with a dedicated sales and support staff just to meet one of these government benchmarks… will they be crazy enough to build an engine in Michigan and ship them to Mexico to meet another?
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If the MI plant were not already built and staffed this would be a no-brainer to site near Toluca to shrink the supply chain. However you as Fiat is on a strict budget the lower cost solution will be to go with the already build and up to speed plant in MI. Can engine plants "flex" the way a final assembly does and make disimmilar products; ie a small straight 4 and a V-8?
The Dundee plant is state of the art. From an article about the plant: "Carmakers' Big Idea: Think Small" by Micheline Maynard in the NYTimes on February 5, 2006 "Although the partnership is intended to produce 840,000 engines a year that could be shared by the three companies, the plant, set to be expanded next year, will have only 250 hourly workers when it reaches peak production. By contrast, Chrysler employs 750 workers who build 350,000 engines a year at its Mack Avenue plant in Detroit. And in the 1990's, Chrysler employed 2,500 workers at its big engine plant in Kenosha, Wis., ..." It would seem that each motor produced by Dundee would cost less than one hour of labor.
"Fiatsler is bringing Fiat back to the US as a one-model-brand (500) with a dedicated sales and support staff just to meet one of these government benchmarks… will they be crazy enough to build an engine in Michigan and ship them to Mexico to meet another?" In a nutshell, this captures how major auto industry decisions are being driven by opportunities to tap into government largesse. Fiat's entire decision to take a piece of Chrysler is based on the premise that things will work out well if Fiat partners with Washington. Similarly, every move we see regarding Opel revolves around tapping the American taxpayer. The money will probably flow through GM's trust fund so Team Obama can minimize a negative reaction from the public.
New mouse over caption: "Fire" in the hole?