Feb 28, 2007 4 min read

FRANKFURT, Germany (AP) – DaimlerChrysler AG, seeking to cut costs and boost sales in North America, said Tuesday it will start selling Chinese-made cars there and in western Europe as it tries to meet demand for smaller, more economical vehicles. The world’s fifth-largest automaker said its supervisory board approved the framework of a limited partnership that will see China’s Chery Motor Co. build the cars in China.

They will be sold in North America and western Europe under its Chrysler Group brands, which include Dodge and Jeep. Financial details were not released.

“Small vehicles such as these will allow Chrysler Group brands to compete in segments in which the brands do not currently compete, and which are especially important in price- and fuel-economy sensitive markets,” the German-U.S. automaker said in a statement after a meeting of its supervisory board.

The deal is expected to be finalized in late March but still requires the approval of China’s government, a move the company said was likely.

There was no word about Chrysler’s fate after the supervisory board meeting, only a reiteration of DaimlerChrysler’s position that the company is examining all its possibilities.

Speculation about a DaimlerChrysler divorce has been rampant since CEO Dieter Zetsche said Feb. 14 that all options are on the table for the money-losing U.S. business. He would not rule out a sale.

Chrysler earlier this month announced that it lost $1.475 billion in 2006 and said it expects losses to continue through 2007. Parent DaimlerChrysler, however, earned $4.26 billion in 2006.

The Chrysler losses were accompanied by an announcement of plans to shed 13,000 jobs, including 11,000 production workers and 2,000 salaried employees as Chrysler trims expenses and factory capacity to match declining sales.

The group has been hurt by consumer demand for smaller, more fuel-efficient vehicles – rather than the light trucks and larger vehicles it has been producing.

Several automakers, including Volkswagen AG and the Renault-Nissan alliance, have ruled out any interest in acquiring Chrysler. FAW Group Corp., one of China’s biggest automakers and a local partner of Toyota Motor Corp. and Volkswagen, refused comment Tuesday on a report that it is considering bidding for a stake in Chrysler.

The Wall Street Journal, citing people familiar with the matter, reported Tuesday that worker representatives on the DaimlerChrysler board are opposed to a deal that would see the company take an equity stake in General Motors Corp. in exchange for Chrysler – another reported option.

DaimlerChrysler said the Chery deal is expected to help Chrysler become a “bigger player on the global automotive stage by giving it access to products in new segments more quickly, with less capital spending.”

In December, the company and Chery agreed on a plan for the Chinese car maker to build small cars that would be sold globally and be based on an existing model that would be modified jointly by Chrysler and Chery engineers.

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 to above $3 per gallon in the U.S., where prices averaged about $2.38 a gallon last week in a government survey.

Chrysler has sought 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.

Big name automakers have set their sights on China and other fast-growing developing markets to help offset legacy costs and provide sales growth missing in the U.S. and other Western markets.

So far, domestic and foreign manufacturers have focused mainly on meeting soaring demand inside China. At the same time, though, Chinese automakers have begun looking overseas for acquisitions, both to expand their market reach and to tap advanced technology and design capacity.

Chery is China’s biggest domestic automaker, with 272,400 vehicles sold last year, but it trails General Motors Corp., which sold 876,747 vehicles last year, as the country’s biggest automaker.

Based in the southeastern province of Zhejian, south of Shanghai, Chery already assembles vehicles abroad in facilities run with local partners in Iran, Malaysia, Russia, Ukraine, Brazil and Egypt.

Also Tuesday, the supervisory board tapped Manfred Bischoff, co-chairman of European Aeronautic Defence & Space Co., to replace Hilmar Kopper as its chairman. That decision requires approval from the annual general meeting on April 4 in Berlin.

Shares of DaimlerChrysler fell nearly 2.4 percent to 52.40 euros ($68.96) in Frankfurt. Its U.S. shares dropped $2.33, or 3.3 percent, to $68.24 in midday trading on the New York Stock Exchange.

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On the Net:

http://www.daimlerchrysler.com

http://www.chrysler.com

AP-ES-02-27-07 1215EST