KOKOMO, Ind. (AP) -- Chrysler is investing millions in the Kokomo, Ind., area as it shifts most of its vehicles to new transmissions that save fuel and better suit the driving habits of Americans.
The automaker will invest nearly $400 million at four plants in the Kokomo area, adding 1,250 jobs to what it says it the largest transmission factory complex in the world. The plants will make fuel-efficient eight- and nine-speed automatic transmissions.
Chrysler plans to use the new nine-speed transmission in key front-wheel-drive vehicles such as the Dodge Dart compact, which has lagged sales expectations. The transmission also will go into a new Chrysler 200 midsize sedan early next year and the Jeep Cherokee midsize SUV, which will replace the aging Jeep Liberty in the summer.
It's a big deal for Kokomo -- and the economy of central Indiana -- considering that the complex was in danger of being shut down just a few years ago.
Kokomo will also add the Ram pickup, by far Chrysler's top-selling vehicle, to the line-up of cars that it makes eight-speed transmissions for. The others are the Jeep Grand Cherokee large SUV and the Chrysler 300 big sedan.
Most manufacturers rely on five- and six-speed transmissions to move their cars and trucks. But Chrysler and others are planning for more gears. Generally, transmissions with more gears help cars and trucks get better mileage because engines always run at peak efficiency and don't have to work as hard at highway speeds. They also allow cars to accelerate faster, which is a demand of American motorists.
CEO Sergio Marchionne confirmed Thursday that Chrysler will spend $162 million and add 850 new jobs at an unfinished Getrag Transmission plant in nearby Tipton. The company will spend another $212 million for new equipment and tooling at three other factories, creating up to 400 more jobs.
Four years ago, as Chrysler was going through bankruptcy protection, the sprawling complex in Kokomo was in danger of closing, which would have had serious economic implications. Marchionne, who also is CEO of Italy's Fiat Group SpA, said he remembers leaning toward buying transmissions from an outside company.
"This would have been an economic hole right here in central Indiana," said George Maus, president of one of the United Auto Workers locals in the city.
But people in the company's powertrain operations sold the CEO on keeping Kokomo open.
Shortly after he started running Chrysler, Marchionne came to Kokomo to tell workers of the decision. But company sales were still bleak at the time. "When Sergio told us he was going to add 700 to 800 jobs, we thought he was crazy," Maus recalled.
Now his daughter has been hired at one of the transmission plants, and Maus is optimistic for the future with the new fuel-efficient transmissions.
With the added jobs coming by early 2014, Chrysler will employ about 7,300 workers in the Kokomo area. The additional workers will start at $15.28 per hour, about half the wage of longtime UAW workers.
Chrysler needs the extra factory capacity to handle growing sales. Its sales grew to 1.65 million last year from just over 931,000 in 2009. The company has added nearly 8,000 hourly jobs since leaving bankruptcy protection in 2009 and invested almost $5.2 billion in its U.S. factories. About $1.6 billion of that will have been spent in the Kokomo area.
Marchionne also said Thursday that he would prefer that Fiat buy the part of Chrysler it doesn't own from a UAW health care trust for retirees. The other option is a public stock offering. Fiat now owns 58.5 percent of Chrysler, with the trust holding the rest. The trust wants cash to help pay retiree benefits, and both sides are sparring in court about the price.
Fiat could use the 10 billion euros on its balance sheet to buy the trust's stake, or it could borrow the money, Marchionne said. But the company also is preparing for a stock offering. "My preference is to be one single company," he said. "We belong together."
Chrysler hopes the investments in Kokomo help the slow-selling Dart live up to expectations. It was unveiled with much fanfare at the 2012 Detroit auto show, but only 25,000 were sold last year. Chrysler had touted the sleek compact as the perfect blend of aggressive American styling and Italian technology. It was supposed to be Chrysler's first competitive compact since the 1990s.
Marchionne said the company mistakenly equipped the Dart with transmissions and engines better suited to European drivers than Americans. He said the nine-speed transmission would be more suitable to U.S. drivers because the added gears will help the car shift more smoothly and accelerate faster.
Dart sales did pick up in January, rising to more than 7,100. The car is built in Belvidere, Ill.
The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.