Money Dispute Halts AMC Jeep Output in China : Firm Wants Payment in Hard Currency; May Let Chrysler Use a U.S. Plant
American Motors is suspending Jeep production at its pioneering joint-venture plant in China for at least two months this summer because of the Chinese government’s unwillingness to use its foreign currency reserves to finance the project, company executives said here Wednesday.
AMC, which in 1983 became one of the first American corporations to establish a major manufacturing presence in modern China, said it has already stopped shipping Jeep components to its joint venture with the government-owned Beijing Automotive Works. The joint venture builds AMC-designed Jeep Cherokee models from unassembled kits that are imported from North America.
Meanwhile, AMC President Joseph E. Cappy revealed at AMC’s annual meeting here Wednesday that the company is holding talks with Chrysler about building the No. 3 auto maker’s large, rear-wheel-drive cars in one of AMC’s underused assembly plants.
Chrysler has run short of space in its plants and wants to expand the production of its popular mini-vans into the St. Louis plant that now builds its big cars. A Chrysler spokesman said a deal to use AMC’s Kenosha, Wis., plant or its Canadian plant in Brampton, Ontario, is one option.
In an interview after Wednesday’s meeting, P. Jeffrey Trimmer, AMC’s general manager for Far East operations, discussed the Chinese joint venture. He said AMC won’t send any more kits until China provides letters of credit that can be used in foreign currencies to pay for the kits.
That means Jeep production at the Beijing plant, which employs 4,000 workers, will be forced to stop in mid-June, when the operation runs out of its existing supply of kits, Trimmer said.
AMC also wants the Chinese to require that retail Jeep buyers--mostly Chinese government agencies--pay 60% of the $18,000 price of the Jeeps in dollars or other foreign currencies that, unlike China’s yuan, are convertible on world money markets. If the customers can’t pay in hard currencies, AMC wants the government to subsidize Jeep sales by making the foreign currency payments for the retail buyers.
Trimmer said AMC’s action won’t affect the joint venture’s production of older Chinese utility vehicles, which account for most of the plant’s output. Both the Cherokee and the Chinese utility models are primarily sold in the domestic Chinese market, although AMC has hoped to export Chinese-built Cherokees in order to obtain more profits in hard currencies.
The impasse over such a large and highly visible project could pose a threat to China’s effort to attract similar projects. The government is negotiating with other U.S. auto companies interested in investing in China, and the collapse of the AMC project could become a major embarrassment. But Trimmer believes that the Chinese will eventually agree to AMC’s terms because they view the success of the AMC deal as crucial to the government’s modernization program.