DETROIT, May 21 (Reuters) - The Chrysler unit of DaimlerChrysler AG said late on Wednesday that it had cancelled plans to build a new assembly plant in Canada, which could lead to problems with the Canadian Auto Workers union.
"A proposed new manufacturing facility, incorporating innovative supplier initiatives for Windsor, Ontario, will not be built because of business viability issues," the German-American company said in a statement.
The Windsor plant, just across the U.S. border from Detroit, was a project that Chrysler had planned mainly to build a new small-sized pickup dubbed the M80.
The M80 was to compete in a segment dominated in the United States by older models from Ford Motor Motor Co. , General Motors Corp. , and Toyota Motor Corp. .
But Chrysler Chief Executive Dieter Zetsche said in a statement that the business environment had changed dramatically since the addition of the plant to Chrysler's Canada-based production was held out as a possibility to the Canadian Auto Workers (CAW) in contract talks last fall.
"The state of the automotive market has created a formidable hurdle, especially for a small, entry-level vehcile such as the one we were considering," Zetsche said.
"Additionally, competitive pricing, ongoing incentives and increasing overcapacity in North America led us to conclude that this is not the time to add new capacity," Zetsche said.
The statement added that Chrylser remained committed to its previously promised investment in Canada between now and 2005.
But a source close to Chrysler's labour talks with the CAW, which ended in a new contract last October, said the union was sure to be angered by the company's decision not to build a new plant in Canada, which would have added new assembly line jobs and given a sorely needed boost to a key Canadian trade union.
He did not elaborate, and CAW officials could not be reached for immediate comment. But Canada has lost a growing number of manufacturing and auto worker jobs to low-cost facilities in countries including Mexico in recent years.