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Chrysler Close to Naming Replacement for A123 Systems

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Aug. 11 (Bloomberg) -- Chrysler Group LLC, the automaker controlled by Fiat SpA, said it will soon name a new battery supplier for its electric vehicles after A123 Systems Inc. said it withdrew from the “diminished” program.

“Our plans for the EV are the same and this does not impact the program timeline,” Katie Hepler, a spokeswoman for Auburn Hills, Michigan-based Chrysler, said today in an e-mail. More details on the supplier may be announced in the “not-too-distant future,” Hepler said.

Chrysler and Fiat Chief Executive Officer Sergio Marchionne said in November that he plans to produce about 56,000 electric vehicles annually by 2014. The company in March announced plans to sell a battery-powered version of the Fiat 500 subcompact in the U.S. in 2012. A123’s deal was reached with Chrysler’s prior managers, who had suggested a full lineup of electric vehicles.

“I don’t think Chrysler will have a problem finding another supplier to work with them on this,” said Aaron Bragman, an analyst with IHS Automotive in Northville, Michigan. “It’s a big program.”

A123 Chief Executive Officer David Vieau said yesterday on a conference call that a competing vendor had been willing to take the business at a lower price and that the program had been “significantly diminished.”

Chrysler’s previous owner, Cerberus Capital Management, had sought to create a full lineup of electric vehicles that included battery-powered versions of the minivan, Jeep Wrangler and a sports car called the Dodge Circuit. Cerberus-controlled Chrysler announced the deal with A123 in April 2009, just weeks before the automaker filed for bankruptcy protection.

New Program

A123 has been chosen to develop a new electric-vehicle platform for another major auto manufacturer that is “serious” about increasing the size of the program, Vieau said. Details of the agreement haven’t been made public, he said.

A123 isn’t having the same success as competitors Johnson Controls Inc. and LG Chem Ltd. at winning major automotive contracts, Bragman said.

“Other suppliers are having much more volume, they’re bringing costs down,” he said. “A123 is kind of behind the game on this.”

Vieau said today the Chrysler program was a unique situation and A123 remains competitive.

“We will be more aggressive with our pricing structure if we identify a program that is important for the long-term growth of our automotive-solutions business,” he said in an e-mailed statement. “However, if we feel the program does not meet our long-term objectives, we will disengage.”

A123, which yesterday reported a second-quarter loss that was wider than analysts’ estimates, fell $1.91, or 18 percent, to $8.53 at 4:29 p.m. in Nasdaq Stock Market composite trading. The Watertown, Massachusetts-based company’s shares have dropped 62 percent this year.

To contact the reporters on this story: Tim Higgins in Southfield, Michigan at Thiggins21@bloomberg.net;

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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