Chrysler gets agreement to buy Sterling Heights plant for $20M

February 20, 2010

Chrysler gets agreement to buy Sterling Heights plant for $20M

The Detroit News

Two Chrysler plants, whose assets have been under bankruptcy protection, saw their fortunes improve under terms of a purchase agreement filed with the bankruptcy court.

Most notably, the Sterling Heights Assembly Plant, which employs 1,200 workers, will remain open through 2012. After repeated delays, Chrysler Group LLC got the agreement it needed to buy the Sterling Heights plant from the estate of bankrupt Chrysler for $20 million — a transfer of ownership to continue to receive tax abatements from the city of Sterling Heights.

Also included in the agreement is the disclosure that Chrysler is giving Old Carco LLC, the estate of bankrupt Chrysler, the intellectual property rights to the V-6 engines it makes at its Kenosha, Wis., plant. That should make it easier to sell the Kenosha operation after it closes at the end of the year.

The Sterling Heights and Kenosha plants were among seven plants slated for closure and left in bankruptcy when a new Chrysler was formed in June with partner Fiat SpA.

Chrysler last year decided to delay closing Sterling Heights to keep making the Chrysler Sebring and Dodge Avenger sedans there until 2012 when they will be replaced with new Fiat-engineered cars. The automaker has not decided where the new cars, likely with new names, will be made. Sterling Heights would need a new paint shop, but in its favor is $8.2 million in tax abatements from the City of Sterling Heights that will continue because of the ownership transfer.

Kenosha makes engines for the Sebring and Avenger. While Old Carco owns the plant and tooling, Chrysler had retained intellectual rights to the 2.7-liter and 3.5-liter V-6s to be phased out as Chrysler introduces a new family of V-6s this year.

Chrysler has now agreed to give the estate the intellectual rights to the outgoing engines to go with the physical assets, which enhances Kenosha’s value.

"You want to be able to sell it as a package," said Michael Robinet, CSM Worldwide vice president-global vehicle forecasts. "Intellectual rights are as important as the tooling itself."

The tooling and rights will appeal to automakers in growing markets such as China or Russia where the relatively modern engines meet less stringent regulations and midsize vehicles needing this size engine are growing in popularity, Robinet said.

The V-6s may be becoming outdated by U.S. standards, but they are a "well-proven and working asset that may have some life left in them, just not in North America," he said.

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