On Monday, The Associated Press (AP) reported that Chrysler Group LLC is planning to build the Fiat 500 minicar at a factory in Mexico. The car is likely to be manufactured at a facility in Toluca, which currently makes the PT Cruiser sedan and Dodge Journey crossover. Chrysler also has a truck assembly plant in Saltillo, Mexico.

Profit margins are generally thin in small cars as they fetch lower prices compared to larger vehicles. Chrysler chose the Mexican facility for the Fiat 500 as labor cost in Mexico is cheaper compared to the U.S. In addition, Mexican factories are closer to Brazil, which is a key market for Fiat.

The UAW union was hoping the minicar would be manufactured at an assembly plant in Sterling Heights, Michigan, after Chrysler received $15.5 billion in government aid recently. Chrysler is considering building a compact car in the U.S. that could be larger than Fiat 500.

Chrysler is now operating under Fiat Group SpA, after the Italian automaker acquired a 20% stake in Chrysler during its exit from bankruptcy protection. The US government owns an 8% interest in Chrysler.

According to AP, Fiat had plans of bringing the hugely popular 500 along with the Alfa Romeo brand and other compact, midsized cars to the U.S. The Italian automaker also plans to bring engines, transmissions and other technologies to Chrysler.

Chrysler sues Daimler

On Monday, Chrysler’s creditors sued Daimler AG (DAI), accusing the Stuttgart, Germany-based company of stripping some of its assets before selling Chrysler to Cerberus Capital Management LP in 2007, to get a higher value.

The creditors sought a jury trial to determine damages and claimed that assets worth about $9 billion were transferred to Daimler, for which Chrysler got only $1.23 billion. The case has been filed with the US Bankruptcy Court in the Southern District of New York.

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