DETROIT - DaimlerChrysler AG's Chrysler Group and China's Chery Automobile Co. have agreed on a plan for the Chinese manufacturer to build small cars to be sold worldwide.

The cars, which already are being designed, would be based on an existing model but will be modified jointly by Chrysler and Chery engineers, Chrysler spokesman Jason Vines said Friday. Chrysler is taking the lead on the design and will ensure that the vehicles meet high quality standards, he said.

A Chery sedan is on display at an auto show in Beijing on November 26, 2006. [newsphoto]

They will be sold at Chrysler dealerships in the U.S., Europe and elsewhere under a Chrysler Group brand as either a Dodge, Chrysler or Jeep.

Chery will build tiny cars known in the industry as "B-cars," but it also may build something larger for Chrysler, Vines added.

The deal needs to be approved by Chrysler's supervisory board, which meets next month, and by the Chinese government.

The move gives Chrysler a relatively quick entry into a growing segment of the car market where it now has no significant product, and it prepares the company in case gasoline prices escalate again to above $3 per gallon (80 cents a liter), said David Cole, chairman of the Center for Automotive Research in Ann Arbor. The average retail price of gasoline in the U.S. ended 2006 at around $2.34 a gallon (62 cents a liter), or 14 cents higher than a year ago.

Alan Helfman, general manager of River Oaks Chrysler Jeep in Houston, said the pact will give dealers coverage in all segments of the car market. "I think that's an incredible deal," he said.

Chrysler has been seeking a Chinese partner to build small cars, saying it cannot make money by manufacturing them in the United States due to high labor and other costs.

"We can't build one here in that segment. You can't make any money on it. That's why we need a partner," Vines said.

He said Chrysler would unveil a prototype "fairly soon," although no date has been set. Production will not start until sometime after 2007, Vines said.

Chrysler would not say how many cars Chery would build or how much they would cost. It also would not reveal the financial terms of the agreement. The letter of intent was signed about two weeks ago, Vines said.

Chery had plans to begin exporting vehicles to the U.S. as early as next year in a joint venture with U.S. entrepreneur Malcolm Bricklin's Visionary Vehicles, but the deal fell apart in November.

"Both sides agreed a joint venture was not a good idea," said Visionary Vehicles spokeswoman Wendi Friedman Tush, adding that Chery wanted to modify existing cars and Bricklin wanted totally new products.

Visionary Vehicles is now pursuing other Chinese manufacturers and will announce an agreement soon, she said.

The deal with Chery will help Chrysler in the U.S., but it also gives the company small vehicles to sell in growing global markets such as India and China, Cole said.

To be successful, automakers have to be ready with cars and trucks for different economic and fuel price situations, Cole said.

1

2