Tuesday, May 22, 2007

Chrysler sale may slow China deal

Christine Tierney / The Detroit News

Soon-to-be-single Chrysler is counting on international partnerships to develop a global presence, but the Auburn Hills automaker may be encountering difficulties with its first deal.

Chrysler is likely to face delays and may have to renegotiate an agreement with Chery Automobile Co. Ltd., a Chinese automaker that was to supply Chrysler with low-cost cars.

"When Feb. 14 happened, they were a little bit concerned," Chrysler spokesman Mike Aberlich said Monday, referring to DaimlerChrysler AG's mid-February declaration that it was considering a sale of Chrysler. It announced last week that Chrysler would be sold to Cerberus Capital Management.

The German newspaper Handelsblatt reported Monday that Chery wanted to re-examine the deal in light of the sale of Chrysler.

But Chrysler officials are confident that they'll keep the negotiations on track. "We're talking to Chery, and in the next week, we'll be talking to them quite a bit," Aberlich said. "We're confident that we're going to get things done, but perhaps we'll need a little extra time for introductions."

The Chery deal, struck last December, was considered a breakthrough for Chrysler, which was searching for a low-cost partner to build and supply subcompacts.

The smallest car in Chrysler's lineup is the Dodge Caliber, and it has nothing in the subcompact segment to compete against the Honda Fit, Toyota Yaris and Korean-built Chevrolet Aveo.

Chrysler's results suffered last year when high gas prices cut demand for pickups, minivans and SUVs, which account for about two-thirds of its U.S. sales.

Chrysler also has taken steps to reduce its reliance on the North American market, setting up production in China and introducing the Dodge brand in Europe.

In the first four months of the year, Chrysler Group vehicle sales outside of North America rose 14 percent to 70,859 vehicles, but that accounts for less than 10 percent of its total sales.

Chrysler CEO Tom LaSorda, who will remain chief executive of Chrysler Holdings LLC under Cerberus, said last week that the automaker wanted to expand the Chery deal or seek other international partnerships.

Questions about the agreement arose after Handelsblatt quoted Chery General Manager Zhang Li as saying the company wanted to renegotiate with Chrysler, because of the sale.

"We continue to be in talks with Chrysler, but we don't have any contact with the new owners yet," Zhang was quoted as saying.

Chery had previously considered producing cars for export to the United States in a venture with entrepreneur Malcolm Bricklin, but that deal unraveled.

Chrysler and Chery have a framework agreement, but negotiations for specific vehicle projects -- such as the subcompact -- are just getting started.

Industry executives and analysts say talks with the Chinese tend to be protracted under the best and clearest of circumstances.

Analyst Jim Hall of AutoPacific said Zhang's comments suggest that Chery executives are curious about who they're dealing with now. "They're checking to see what has changed," Hall said.

Some Chrysler executives say the automaker may find it easier to strike up partnerships as a stand-alone company than as part of DaimlerChrysler, with its exhaustive procedures and spotty record for alliances. DaimlerChrysler previously sold most of its interest in Mitsubishi Motors Corp. and its equity stake in Hyundai Motor Co. of South Korea.

But industry experts say Chrysler will lose the cachet of an association with DaimlerChrysler's Mercedes-Benz brand.

In addition to Chery, one potential Asian partner may be Mitsubishi, which has been partners with Chrysler in the past.

Chrysler will take the lead in handling negotiations with Chery. "This is not something Cerberus will negotiate for us," Aberlich said. Next week's meetings had been scheduled before the sale announcement.

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