cherya1.jpgIt was only a matter of time of course, but the news that a significant chunk of the US population could soon be driving cars that are Made in China has served a wake up call to the western car industry.

Chrysler, which is in the throws of a divorce from Germany's Daimler, has duly signed a deal with China's biggest carmaker, Chery, to produce small cars for export to the US and elsewhere.

This in the first attempt by a US automaker to use China as a manufacturing base for world markets and the first cars will be exported within a year to Latin America or eastern Europe. The Made in China vehicls should reach the US and western Europe by 1010, said Chrysler chairman and CEO Tom LaSorda.

The first model to benefit from this tie-up will be based on Chery's A1 compact (pictured) and sold under the Dodge brand. In China, the cheapest version around 54,000 yuan — just over $7,000 — and Chrysler hopes that the deal with Chery will allow it to bring down prices of its small and sub-compact vehicles to similar low levels in the west. This long-held aim has been mission impossible while Chrysler vehicles are manufacturing in the US.

It is important to emphasise that the deal only covers small cars — the segment of the market where Chrysler faces biggest challenges. The US carmaker plans to look closely at other small-car models now being developed by Chery to identify those with most export potential and see what branding and regulatory modifications may be needed.

The companies will jointly develop the news models, probably with Chrysler styling on a Chery platform, LaSorda said.

The Chrysler boss said he had “no concerns at all” about convincing US consumers that Chinese-made cars are safe at a time of warnings about seafood, tyres and other goods imported from China — see this EngagingChina story for background.

The question was to be expected given the growing concern in the west about the quality of Made in China goods. In China, more than 350,000 vehicles were recalled last year and quality has become a growing concern for car buyers — see this EngagingChina story.

Nevertheless, the US carmaker is going to make very sure that Chinese-made vehicles bearing the Chrysler badge meet the levels of safety and quality that western car buyers expect. Chrysler knows the eyes of the world will be watching it and it does not want to run the risk of damaging its brand. Besides, US car buyers are a demanding lot so even the merest suggestion that corners been cut to save money is going to result in costly recalls and class-action lawsuits.

The Detroit News has a good oped column on the ramifications of this landmark deal and its effect on Motown. More EngagingChina stories on Chery here.

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