After news of talks between Chrysler and Chery surfaced in May last year, Chrysler group CEO Tom LaSorda has finally signed a letter of intent with Chery Automobile Co to develop a small car for the group, but this is pending approval by DaimlerChrysler supervisory board, which will meet this month to discuss the matter. Other partners which were considered were Mitsubishi Motors Corp, and Hyundai Motor Co Ltd, but it is Chery who managed to clinch the deal in the end.

The collaboration is expected to be approved by the DCX board, and manufacturing will soon begin, according to Chrysler spokesman Jason Vines. It is not known for now Which badge under the Chrysler group will appear on the grille of this new small B-segment car, but the logical choice would be Dodge, the group’s value brand. Chrysler previously exhibited a concept small car, the Dodge Hornet, an aggressive-looking muscular small car, but the new compact from the Chery-Chrysler collaboration will not be the Dodge Hornet.

The car is expected to be built in China, as Chrysler says it cannot profitably produce a small car in the US. Chrysler has been in talks with Chery for nearly a year before this agreement was reached. More details will be released in a month’s time or earlier. The new small car will compete against the Toyota Yaris, Chevrolet Aveo, Honda Fit and Nissan Versa in the United States. It will also be sold in Canada, Mexico, Europe and possibly China. While this is a start for Chery’s involvement in the US market, but it is still keen to export it’s own cars under it’s own brand to the US as the small car will not be Chery-branded.

2006 was not a good year at all for Chrysler dealers in the US. The company kept cranking out minivans, medium to big cars and SUVs throughout the whole summer despite warnings and suggestions by dealers against the move. Chrysler just went on and on with overoptimism fueled by the success of the Chrysler 300. Despite employee pricing sales incentives and other promotions, dealers choked on inventory and floorplan bills skyrocketed with dipping sales. The Chrysler group posted a US$1.48 billion loss in the third quarter 2006. Will this new small car give Chrysler and it’s dealers a much needed boost? And even if so, what is Chrysler going to do with it’s sales bank of unsold cars? Instead of slowing down production when demand dropped, production was kept at full capacity, and now unsold Chrysler cars are just lying around in storage areas. Sound familiar?

Check after the jump for an interview with Tom LaSorda.

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Interview wih Tom LaSorda

Chrysler Group President and Chief Executive Officer Tom LaSorda spoke with TheFirehouse about the deal reached with Chery Automobile Co. of China to distribute Chery-made small cars in North America and other markets.

“If you look at the U.S. market, or even in NAFTA, all the B-segment vehicles are being imported from the Asia region. The major reason is their cost structure and their ability to engineer and design in those segments. And we really cannot compete, nor can any one else, making it in this region,” he said.

Question – Why partner with Chery, or any Chinese car company for that matter, instead of building the car here in North America or at a DaimlerChrysler plant in China?
Tom – “Well, first of all, we’re talking about a B-segment, which is a very small compact car, and if you look at the U.S. market or even in NAFTA, all the B-segment vehicles are being imported from the Asia region. The major reason is their cost structure and their ability to engineer and design in those segments. And we really cannot compete nor can anyone making it in this region.”

Q – This being an election year, will this be used as a political statement about more jobs going to China?

Tom – “Well, first of all, I can’t control what people say politically. What I can control is the fact that we are already exporting cars into China – the Chrysler Group. We’re also producing locally the 300, the minivan into China, and most people don’t know that we’re exporting a large percentage of the componetries of these cars – the engines, the transmissions and major high-cost parts that are made by Americans and Canadians primarily – are being shipped over to these markets for us in China. I tell you, there are a lot of jobs being preserved by our growth in China and our exports there. And this (the Chery deal) will have no impact because we’re not even involved in the B-segment today.”

Q – Can China build a quality car that will satisfy North American consumers?
Tom – “Well, absolutely, and our role here is to ensure that our engineering and design and quality teams are working with Chery along the way to meet the stringent standards, not only in North America but around the world. And that teamwork will continue throughout this project.”

Q – Will this car mean the death of the Hornet, the muscular small car concept that we saw at the Geneva auto show this year?

Tom – “The Hornet is a great statement of our design. It is also a statement that it’s something that we’re going to continue to take a look at, and depending on the business case going, we’ll look at that independently from this particular project.”

Q – How will this help the Chrysler Group’s attempts here in the United States to shift some of the mix away from pickup trucks, minivans and SUVs with gas prices high right now?

Tom – “Well, the consumers are, quite frankly, just looking for choice, and the fact that the Chrysler Group doesn’t even play in this segment, it’s very important that we do. This is important for our growth here, but not only here in the NAFTA region – and I’m talking Canada, Mexico and the United States – but the European markets and other growth areas, where the growth is going. We need to follow with a cross-section of great cars and trucks across our whole portfolio. That’s why we need this in this region as well. Our attempt here will help us in this region because the gas mileage of this car will be exceptionally good and we’re looking forward to this coming in to help us as this segment is growing in this region and we just need to play a part.”

Interview Source: Chrysler’s TheFirehouse Blog