Chrysler says China’s Chery not ready for U.S.

updated 3:30 p.m. ET April 20, 2008

BEIJING - Chrysler LLC's talks on a possible joint venture with China's Chery Automobile Co. are progressing, but a China-made car being produced by the alliance is not ready for the U.S. market, Chrysler executives said Sunday.

"Safety is a huge challenge because of the size of the car," Phil Murtaugh, chief executive of Chrysler's Asia operations, said at the China auto show in Beijing. "There are some challenges. They are not huge changes but they are technical challenges in certain parts of the car."

Murtaugh said the vehicle's body structure needed work.

"I don't think we're too far away, but neither one of us are ready to say 'Let's go' yet," he added.

The low-cost car will be sold under Chrysler's Dodge brand in the U.S. and other markets.

Meanwhile, talks with Chery on a joint venture are still ongoing, Murtaugh said.

Chery is among several potential partners Chrysler is considering as it prepares to ramp up local production with the aim of joining the ranks of China's top 10 automakers.

"I think the discussions are progressing well," Murtaugh said, declining to comment further.

Mike Manley, Chrysler Group's vice president for international sales and dealer operations, said "Chery continues to be a very important part of what we're doing going forward."

The possible partnership with Chery reflects the prevailing pressures both on Chinese and foreign automakers as they scrounge for growth in increasingly saturated home markets.

Chrysler, which was acquired last year by New York-based private equity firm Cerberus Capital Management LP, needs to expand capacity to grow overseas sales. Chery is seeking to move upscale as it increasingly relies on growth in exports while facing intensifying competition from domestic and foreign automakers in China.

Murtaugh is a former General Motors Corp. executive credited with establishing GM's leading presence in China. He joined Chrysler last year after a stint at Shanghai Automotive Industries Corp., one of GM's Chinese partners.

Last week, Chrysler and Japan's Nissan Motor Co. announced an expansion of their car- and truck-building alliance — part of Chrysler's strategy for tapping faster growth in overseas markets.

"Nissan filled a gap in our product portfolio," Manley said.

Chrysler is determined to keep its status as a top 10 world automaker — and that means growing to gain that status in China, now the world's second-biggest vehicle market, he said.

Chery Chairman Yin Tongyao, speaking at a separate event, was cautious about his aspirations to begin U.S. sales after years of pledging to break into the North American market.

North America and Europe are "very mature markets," Yin said. "We can't get into those markets too quickly, so we should explore those markets in a gradual manner and do it step-by-step. We should not aim too high."

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