Chrysler may turn to China for small car

Chrysler may turn to China for small car
Chysler CEO doesn't dismiss reports Chinese company Chery being considered to build new small car.
September 26 2006: 11:58 AM EDT

DETROIT (Reuters) -- DaimlerChrysler AG's Chrysler Group could link up with a Chinese automaker to launch a new small car as Chrysler works to conclude a review of potential partners in the coming weeks, Chief Executive Tom LaSorda said on Monday.

LaSorda, speaking to the Automotive Press Association in Detroit, noted that the No. 3 U.S. automaker has never named the companies in Asia and Europe it had discussions with about a deal to produce subcompact cars for sale in the United States and other markets.


The Dodge Caliber hatchback has been a hit for Chrysler in the U.S and overseas.

But, when asked, he said "China has not been ruled out" as a production hub for the new vehicle.

LaSorda said he hoped Chrysler (Charts) would have an announcement about a partner for the division's push into small cars by the end of the year.

He did not comment on reports that DaimlerChrysler was moving close to clinching a deal with China's Chery Automobile Co. in what would mark a first-of-its-kind tie-up for the developing Chinese auto industry.

"We know we can't do it alone," LaSorda said of Chrysler's bid to fill a hole in its vehicle lineup with a new subcompact. "The capital expense alone would be very high."

Chrysler currently has no offerings in the small car segment, which is growing in the United States and represents a still larger share of sales in Europe and other markets.

Chrysler showed a Dodge-branded small car concept called the Hornet earlier this year, which was seen as showing the design direction of the small car it would develop if it enters the small-car market.

Beyond the U.S.
Chrysler has been pushing to diversify beyond the U.S. market and executives have said a new small car would build on the success the company has had with its Caliber hatchback, which was launched earlier this year.

The U.S. division is also aiming to move away from its reliance on slower-selling trucks and sport utility vehicles, a product mix that has left it saddled with costly inventory this year as U.S. consumers have shifted to more fuel-efficient cars.

Some 7,000 Caliber models sold outside North America in the first three months the car was on the market, LaSorda said, making it Chrysler's most successful international car model.

Chrysler is aiming to get 9 percent of sales from outside North America in 2007, up from about 6 percent in 2000, he said.

The Detroit News and the German magazine Der Spiegel have both reported Chrysler was close to finalizing a deal with Chery, which has also been in talks to sell cars in the United States market with entrepreneur Malcolm Bricklin.

Health care costs in focus
Separately, LaSorda said Chrysler would continue to press the United Auto Workers union for a cost-saving deal on health care that would match similar agreements made with Chrysler'sDetroit-based rivals Ford Motor Co. (Charts) and General Motors Corp. (Charts)

Chrysler is slashing current-quarter production by 24 percent in response to a glut of unsold trucks and SUVs, such as the Dodge Durango. The company is forecasting a loss of $1.5 billion in the third quarter.

Chrysler will try to revive talks with the UAW to cut its $2.3 billion bill for worker health-care costs, LaSorda said.

UAW President Ron Gettelfinger has said Chrysler was not facing the same financial pressure as Ford and GM and that union membership would not have approved any agreement to shift more health-care costs to factory workers and retirees.

But LaSorda said that amounted to a cost advantage for Chrysler's rivals, and called for the union to restore a "level playing field."

"Obviously we hope to keep the dialogue going," he said. "We will see what happens."