Chrysler close to small-car partnership

LaSorda

Automaker could partner with Chinese firm to manufacture subcompact model.

Josee Valcourt / The Detroit News | DETROIT -- Chrysler Group CEO Tom LaSorda said Monday it could strike a partnership with an overseas manufacturer to build a subcompact car for the United States by year end and China has not been ruled out as an export hub.

LaSorda also reiterated that Chrysler is considering restructuring actions after revealing last week that it will lose $1.5 billion in the third quarter.

Offering a subcompact to American consumers would help beef up Chrysler's car lineup and give it a presence in a market segment where foreign rivals Toyota, Honda and Nissan are reaping benefits as more consumers opt for fuel efficiency.

Chrysler's parent company, DaimlerChrysler AG, is in talks with China's Chery Automobile Co. Ltd. to build a subcompact for the North American market, people familiar with the discussions told The Detroit News.

The deal would be a watershed event for the U.S. auto industry. No mass market Chinese-made car has ever been sold in the United States.

The vehicle would likely be sold under the Dodge nameplate in the United States and other markets, including Europe and Latin America. The automaker has shown a concept subcompact car called the Dodge Hornet.

Chrysler said it would be cheaper to produce the vehicle overseas and has had talks with Hyundai, Volkswagen and Mitsubishi Motor Co. in pursuit of a partnership.

"The only way the Chrysler Group can make a business case for a low-margin subcompact is through a partnership, which allows us to reduce capital investment, bring product to market faster, and meet low cost and high-quality targets," LaSorda said at an Automotive Press Association breakfast event at the Detroit Athletic Club.

LaSorda would not comment on reports of an impending deal with Chery but said an agreement with a Chinese manufacturer "has not been ruled out."

Fewer than 300,000 subcompact vehicles will be sold in the United States this year, accounting for about 2 percent of the overall car and truck market, said Jeff Schuster, an automotive forecasting analyst for J.D. Power and Associates. But demand for subcompacts will continue to grow, experts predict. By 2010, the market will grow to 400,000 vehicles, he predicts.

"It's still a small number," Schuster said. "But the first-time car buyers are looking at this segment so the idea behind it isn't only incremental volume for market share but to build loyal buyers. When they're ready to shift into something larger, the hope is that you keep them in your brand."

Aside from General Motors Corp.'s tiny South Korea-built Chevy Aveo, the subcompact class is ruled by Asian automakers with vehicles such as the Toyota Yaris, Honda Fit and Nissan Versa -- all made overseas and sold in the United States

In addition, the large Generation Y demographic is approaching driving age and will account for a substantial number of first-time car buyers.

"This is an important segment to attract more younger and entry-level buyers," LaSorda said.

The Chrysler Group's smallest car is the Dodge Caliber hatchback, which has sold well since its debut in February.

Light trucks still account for 71 percent of its sales for Chrysler, Dodge and Jeep, meaning the automaker was vulnerable as demand swung sharply toward smaller vehicles this year.