German-U.S. automaker DaimlerChrysler AG and Beijing Automotive Industry Holding Co. said Monday they have agreed to a EUR 1 billion deal that includes production of Mercedes sedans in China.

The agreement for strategic cooperation also includes plans to restructure Beijing Jeep Corp., the original partnership between the two companies and the oldest automotive joint venture in China.

The companies said they plan to begin making Mercedes E Class and C Class sedans with an initial annual production capacity of 25,000 units. However, they didn't provide details of when the first China-built models of the sedans will go on sale.

The cooperation agreement poses a direct challenge to Germany's Bayerische Moteren Werke AG (G.BMW) which also plans to tap the top end of the China automotive market through a 50-50 joint venture with Bermuda-registered Brilliance China Automotive Holdings Ltd. (CBA) to produce BMW 3-series and BMW 5-series models.

The companies said they plan to use the proposed relocation of Bejing Jeep's production facilities to upgrade its operations and add output of the new Mercedes Benz models.

In cooperation with Beijing Automotive unit Beiqi Futian Automobile Co., DaimlerChrysler also plans to help the local automaker expand its engine-building and component-manufacturing capacity in China.

The investment will allow Beiqi Futian's existing facilities to use technologies from Mercedes Benz heavy duty engines and other key components to improve its production lines and increase sales. The agreement also allows Beiqi Futian to tap the international market using the Mercedes Benz brand, the statement said.

The deal marks Beijing Automotive's continuing success in attracting foreign investment and expertise to help upgrade the company's product line-up and take on rival automaking centers in China, such as Shanghai.

Building on the original Beijing Jeep joint venture, Beijing Automotive also has a joint venture with South Korea's Hyundai Motor Co. (Q.HMC) to make Sonata sedans for the local market.

The Beijing-based automaker has also partnered with Japan's Mitsubishi Motor Corp. to produce a new line of sport utility vehicles for the China market.

Beijing Automotive's various tie-ups also reflect DaimlerChrysler's investment strategy within the region. The German-U.S. automaker holds a 37.3% stake in Mitsubishi Motors and plans to set up a commercial vehicle joint venture with Hyundai.

Company Web site: http://www.daimlerchrysler.com

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