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Chrysler's Chinese Gambit

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Chrysler is showing signs of desperation. The company signed its second deal with a Chinese carmaker in recent months—this one apparently aimed at filling the company's void of small, fuel-efficient cars as quickly and cheaply as possible. The partnership with Great Wall Motor is vague in its goals and expectations. The companies will explore long-term business ties in "distribution, components and technology."

That could mean more Chrysler models being built in China—they already make four there but sell 12 models right now—rather than bringing any Great Wall products to the U.S., since, like Chrysler, Great Wall specializes in trucks and SUVs. Some of Great Wall's engines might be useful in adding low-cost, fuel-efficient power to future products, but that would have to be weighed against the cost of making them emissions-compliant.

Another route might be using Great Wall to speed development of alternative propulsion and fuel technologies, helping Chrysler to cut down on its three-to-five year prediction of how long it will take to get a significant number of hybrids on the market. Like Chrysler, Great Wall is privately held, which also gives it more flexibility in working on such projects.

Last year, Chrysler signed a deal with another Chinese automaker, Chery Automobile, to jointly produce small cars—which the company needs to fill the lower end of its product lineup. Right now, the smallest Chrysler model is the Dodge Caliber, a 3000-pound compact car that tops out at 29 mpg highway with its 1.8-liter 4-cylinder engine. Chery and Chrysler are jointly developing and marketing small cars for some overseas markets, but have been silent as to when any of the products will be available in the U.S.

Chrysler can use the cars as soon as Chery proves that it can produce a quality and style of small car capable of making it in the American market. This is a genuine issue, because pure price and size will not move iron, even in this hot market for small cars, as GM found out with its dowdy Daewoo-built Aveo.

Chery also has hybrid technologies ready to go. The company has shown prototypes, and half of its cars will be hybrids by 2010.Bringing over some of that technology—even if it is adapted to existing Chrysler product—would advance the company beyond its announced plans, which will leave it squarely in last place among the major American automakers.

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