Chrysler confirms alliance with China's Chery

The sale of Chinese-made cars in the USA and Australia is one step closer after a deal was signed between Chrysler and the Chery motor corp in Beijing yesterday.

Under the agreement, Chery and Chrysler will modify existing Chery models in order to enter the small and sub-compact car markets in North America, Europe and other major automotive markets including Australia under the Chrysler Group brands.

Chery, which has at least seven models in its line-up, currently exports vehicles to countries including Bangladesh, Iran, Iraq and Syria and has set a goal of selling just under 400,000 vehicles this year. The deal is expected to be mutually beneficial, with Chery capitalising on Chrysler's distribution experience.

Chrysler, the fourth largest automaker in the US, says it wants a relationship with Chery to develop a new small car to deflect costs of designing, manufacturing and marketing a vehicle in a segment where margins are narrow and consumers expect a low sticker price.

The majority of Chrysler's US sales come from the light-truck segment which industry analysts suggest is a weakness at a time of high petrol prices and expected tougher fuel economy regulations.

"Every other automaker is importing B-segment cars into the US market -- except Chrysler Group," said Chrysler Group President and CEO, Tom LaSorda. "We've got to get into play here."

According to Detroit News, Chrysler has taken steps to reduce its reliance on the North American market, by setting up production in China, relaunching the brand in markets like Australia and introducing Dodge to the European market. The company says strategic growth in international markets is an important part of Chrysler Group's "Recovery and Transformation Plan".

DaimlerChrysler Australia spokesman David McCarthy told the Carsales Network that Chrysler wants to sell 20,000 vehicles per annum in the local market alone. DCA is not discounting the prospect some of those sales may eventually come from Chery-sourced, Chrysler (or Dodge) badged cars.

"Chery is actually a good fit with us," says McCarthy. "The company is ambitious and if you look at the [Light and Small car] market, it's largely made up of low-cost Asian manufacturers. So we've been talking to Chery for a long time. We really want to be a top-ten player."

McCarthy couldn't confirm which Chery cars would be candidates for the local market, however.

"It's early days but we'd consider any and all of those [cars] that fit a business case, this market, and of course, if they're available in right-hand drive," he said. 

Chery Automobile's president Yin Tongyao told China Daily that Chrysler will begin sales of the Chery A1 (pictured) in the first quarter of next year. The A1 creates an entry for Chrysler in a market segment under its smallest and cheapest offering; the Caliber 'crossover' hatchback (more here), released last year.

Chery, which has several ties within the industry including an engine supply deal with Fiat, signed a letter of intent with Chrysler in December last year. The recent Cerberus Capital Management takeover of Chrysler has not delayed the agreement, rather the deal has been pending approval by the Chinese government.

It's not the first time the US has been offered Chinese-built cars: Chery and 'auto entrepreneur' Malcolm Bricklin, with investment banking firm Allen & Co, signed the first-ever deal to import cars made in China for sale in the US back in 2005.

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