Car deal gives Chery a global foothold

DAIMLERCHRYSLER AG has signed a letter of intent with China’s Chery Automobile Co for the Chinese company to build small cars to be sold worldwide as Chryslers.

The cars, which already are being designed, would be based on an existing model but will be modified jointly by Chrysler and Chery engineers.

Chrysler is taking the lead on the design and will ensure the vehicles meet all global emissions, safety and quality standards.

Apart from the small cars the company may also build larger vehicles for Chrysler.

However, before the deal goes ahead it needs to be approved by Chrysler’s supervisory board, which meets next month, and by the Chinese government.

The move gives Chrysler a relatively quick entry into a growing segment of the car market where it now has no significant product.

Chrysler has been seeking a Chinese partner to build small cars, saying it cannot make money by manufacturing them in the United States due to high labour costs.

Chrysler is expected to unveil a joint Chery-Chrysler prototype soon but production would not start until next year.

Chrysler has refused to divulge how many cars Chery would build or how much they would cost. It also would not reveal the financial terms of the agreement.

Chery had originally planned to start exporting vehicles to the United States as early as next year in a joint venture with US entrepreneur Malcolm Bricklin’s Visionary Vehicles, but the deal fell apart in November.

Chrysler Group President and CEO Tom LaSorda said the Chrysler-Chery cars could be sold in Europe as was as “other” global markets, which could include Australia.

"Being able to partner with Chery represents a long-term solution to the challenges of how to profitably compete in the small vehicle segment," Mr LaSorda said.

"This supply partnership is part of a new business model that is allowing us to introduce all-new products more quickly, with less capital spending.

"This announcement reflects the realities of a global industry and DaimlerChrysler’s need to remain competitive in all segments." Chrysler Group officials say the new vehicles, which will be sold under Chrysler Group brands, will attract new customers in two segments in which the company does not currently compete, very young buyers and entry-level budget buyers.

Mr LaSorda said that although historically Chrysler Group has been the most reliant upon trucks, minivans and sport-utility vehicles, the company is now moving quickly toward smaller vehicles.

"We already have a well-established relationship with Chery Automobile," he said.

"Chery is the largest third-party customer of the Chrysler Group/BMW Group Tritec Engine joint venture in Brazil." Since 2004, Tritec 1.6-litre engines have been exported for use in the Chery A15 and Chery Fengyun.

Chery has already adopted state-of-the art manufacturing processes.

Founded in 1997, Chery is China’s largest exporter of domestically made vehicles.