July 3, 2007 / 2:26 PM / 10 years ago

Chrysler, China's Chery to seal vehicle alliance

4 Min Read

By Kevin Krolicki

DETROIT, July 3 (Reuters) - Chrysler Group and China's Chery Automobile Co. will finalize a groundbreaking alliance on Wednesday in Beijing that could result in the first Chinese-made vehicles being exported to the U.S. market.

The Chinese government has cleared the deal, a spokesman for Chrysler said on Tuesday. A formal signing ceremony in Beijing featuring Chrysler Chief Executive Tom LaSorda is scheduled for Wednesday, he said.

"It's a finalization of the strategic framework we've been talking about," Chrysler spokesman Mike Aberlich told Reuters.

Chrysler, being sold to Cerberus Capital Management in a deal expected to close as soon as this month, had been negotiating with Chery to build a small car under a Chrysler brand for sale in the United States and elsewhere.

Closure of the deal had been delayed by the sale of Chrysler by its parent DaimlerChrysler AG DCXGn.DE.

LaSorda said in May that a newly independent Chrysler was seeking a broader alliance with Chery aimed at small cars and faster-growing emerging markets.

More than 90 percent of sales for Chrysler, which holds the Chrysler, Dodge and Jeep brands, are in North America and the No. 4 U.S. automaker has targeted growth in Europe and Asia as a key sales priority.

Chrysler's Aberlich said that the alliance framework to be signed in Beijing was general and that the two automakers would sign individual contracts for the vehicles that will be produced under the cooperative agreement.

Chrysler and Chery signed a preliminary deal in December that was seen as a major advance toward China's goal of exporting from its fast-growing auto industry into developed markets, including the United States.

Chrysler has said that it needed to find a partner to develop a new small car because of the costs of designing, making and marketing a vehicle in a segment where margins are narrow and consumers expect a low sticker price.

While many industry executives and analysts expect Chinese automakers to eventually compete aggressively in the U.S. market, several early ventures aimed at exporting a Chinese-built vehicle to the United States have faltered or faced setbacks.

Analysts have also cautioned that the first wave of Chinese-built vehicles are likely to face skepticism from American consumers concerned about safety and quality.

Cerberus is acquiring 80.1 percent of Chrysler from Daimler in a $7.4-billion deal expected to close this quarter.

The smallest car in Chrysler's current line-up is the Dodge Caliber, a compact hatchback launched last year.

More than 70 percent of Chrysler's U.S. sales come from light-trucks like its Jeeps and Ram trucks, a product skew that analysts have cited as a weakness at a time of high gas prices and expected tougher fuel economy regulations.

Chery, a medium-sized auto company in eastern China, has posted fast sales growth in its home market by offering a line-up of inexpensive vehicles.

Chery currently exports vehicles to developing countries and has set a goal of selling 393,000 vehicles in 2007, up 29 percent from 2006.

((Editing by Maureen Bavdek; Reuters Messaging: kevin.krolicki@reuters.com@reuters.net; 1-313-967-1902)) Keywords: CHRYSLER CHERY/

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