Chrysler to build small engine at Michigan plant

U.S. automaker Chrysler will build a small Fiat-supplied engine starting in late 2010 through a $179 million investment at an existing Michigan plant, Chief Executive Sergio Marchionne said on Thursday.

In announcing the site for the small engine production, Marchionne said the next two years would be critical for the Chrysler five-year restructuring plan outlined in November, a period in which it seeks to rebuild trust from consumers.

Chrysler has seen sales drop more steeply in the United States than its competitors during the industry downturn and has aimed through an alliance with Fiat SpA to develop smaller, more fuel-efficient vehicles for the U.S. market.

The Fiat 500 is the first of the small vehicles aimed at stopping the U.S. market share losses for Chrysler, which historically has had little international sales.

"There is reluctance on the part of the consumer base to come back to the brands," Marchionne said in a news conference at Chrysler headquarters. "The problem with this is that there is no immediate solution to rebuilding brand equity.

"My experience says that it cannot be done in less than 24 months," he said. "I have every intention to try to beat that."

Chrysler Group LLC emerged from a U.S. government-funded bankruptcy in June under the management control of Fiat, which took a 20 percent ownership stake in the automaker.

Chrysler plans to build a 1.4-liter engine at its plant in Dundee, Michigan, for use first in the Fiat 500 to be produced in Mexico. Half of the Fiat 500 production is aimed at the United States and half at the Latin American market, he said.

The engine production will create 155 jobs at Chrysler and 573 overall, and benefits Chrysler both in speed and costs, "a prime example of how we expect this alliance to work," Marchionne said.

Chrysler will get the engine for an investment in tooling and related costs of about $179 million and nearly zero development costs, he said.

Marchionne said the support of the agreement with the United Auto Workers union was crucial in the selection of the plant as the site for the small engine production.

A UAW-aligned healthcare trust for union retirees holds a 55 percent stake in the reorganized Chrysler.