Chrysler signs deal to sell Chinese cars

Automaker becomes first to partner with Asian giant to help it break into U.S. market

By Rick Popely
Tribune staff reporter
Published December 30, 2006

The first Chinese cars could arrive in the U.S. in less than two years and be sold under an American brand name.

Chrysler Group, the U.S. unit of DaimlerChrysler AG, said Friday that it has signed a letter of intent with Chinese manufacturer Chery Automobile Co. for Chery (pronounced "cherry") to build a small car that Chrysler will market in North America, Europe and elsewhere.

Several Chinese auto companies want to sell vehicles in the U.S., and the planned arrival of a Chery-made product signals the coming of a new era of competition, decades after the Japanese and Korean car companies arrived in America from Asia.

Chinese factories have the latest machine tools and assembly robots, plus the benefit of an extraordinarily low wage structure: less than $2 an hour, compared with about $28 an hour in U.S. plants.

This would help Chinese automakers compete economically. But they would still have to meet high U.S. standards for quality and safety and satisfy fickle consumer tastes for style, comfort and the latest features.

Chery gets the benefit of coming to the U.S. under DaimlerChrysler's wing. Dodge is the brand most likely to sell the car, a subcompact that will be smaller and cheaper than the $13,575 Caliber, the smallest in the Chrysler Group lineup.

Chrysler displayed a subcompact concept car, the Dodge Hornet, earlier this year that industry analysts took as a hint of the company's plans.

The company did not give details on the car or say when it would go on sale, but spokesman Jason Vines said it would arrive faster than the typical three-year lead time, meaning as soon as 2008.

Hitting the market by 2010 "would be way late," said Vines, Chrysler's vice president of communications.

Chrysler thus jumps to the head of the line to sell a Chinese vehicle in the U.S.

"It's inevitable that the Chinese will sell in the U.S. It's a matter of who and when," said George Peterson, president of industry forecaster Auto Pacific.

Peterson says the arrival of Chinese cars does not signal doom for the U.S. auto industry, but it will heighten the pressure to build vehicles at lower cost. He sees other domestic manufacturers following Chrysler and import vehicles from China.

"With the legacy costs they're carrying, that could force those companies to look offshore for more production," he said.

Peterson predicts that Chinese cars could start selling in "substantial volumes"--tens of thousands per year--by 2011 or 2012 in the U.S.

Chrysler has expressed a desire to sell a subcompact or "B-segment" car for years, but executives have repeatedly said they could not profitably build a small car in the U.S. because of the labor costs.

The agreement with Chery, negotiated over the last year, will be submitted to DaimlerChrysler's supervisory board in January, Vines said. If it is approved, Chrysler expects to show a prototype in 2007.

Vines said the car would be built on "an existing platform" but did not specify whether it would be a Chery or Chrysler.

Chery was supposed to supply cars for American entrepreneur Malcolm Bricklin's Visionary Vehicles, but Bricklin recently began talking to other Chinese manufacturers because Chery's models didn't perform well in U.S. safety tests.

For Chrysler, a Chinese-built car gives its dealers a low-price rival for subcompacts such as the Toyota Yaris, Honda Fit, Nissan Versa and Chevrolet Aveo, which is built in South Korea. Sales in that segment are up 54 percent this year, to 264,000, through November.

Building cars for Chrysler will give Chery valuable experience in the U.S. market, where quality standards are much higher than those in China.