Chrysler, China carmaker near deal

NEW YORK (CNNMoney.com) -- Chrysler is set to announce a deal for China's Chery Motor Co. to build small cars for it to sell in the United States and western Europe, despite growing concern at home about the safety of Chinese-made goods.

Chrysler Group spokesman David Elshoff said the deal between Chrysler and Chery Motor is set to be announced Wednesday morning in Beijing, around 10 p.m. Tuesday in Detroit, just before the start of the U.S. Independence Day holiday.

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Elshoff denied the timing was meant to bury the news of a deal to import Chinese autos when Chrysler is cutting 9,000 workers and closing plants, while gearing up for crucial labor negotiations with the United Auto Workers union.

"It has nothing to do with that," he said. "The final step was the government in China. Apparently 10 a.m. in Beijing is a good time to announce it."

Details about the cars or when they might be ready for import aren't expected tonight. Chrysler is looking to Chery for so-called "B-segment" vehicles, which are smaller than any models, including subcompacts, being built in the United States.

Chrysler first confirmed it was holding talks with Chery on the Friday before last December's New Year holiday, another time that minimized news coverage. The company said the timing was based on response to a press inquiry.

The board of Chrysler parent DaimlerChrysler (Charts) had signed off on its side of the Chery venture in early February. Since then Daimler agreed to sell a majority stake in Chrysler to private equity firm Cerberus Capital Management.

Questions about safety problems with Chinese-made goods have gotten growing attention in recent weeks following a series of recalls and product bans on items as varied as children's toys to seafood, toothpaste and animal feed.

And Reuters reported late last month that a mid-range sedan developed for the European market by another Chinese carmaker, Brilliance, scored only one out of a possible five stars in a crash test.

The German auto association ADAC said that in the event of a real crash, a person would have little chance of surviving in the accident simulated in the test.

In January, Chrysler CEO Tom LaSorda, who is in Beijing for the announcement, told CNNMoney.com he didn't believe that concerns about the quality of Chinese products would hurt the sales of any Chinese imports, although he acknowledged it will be a challenge for Chinese manufacturers to meet U.S. quality, safety and emission standards.

"The American consumer doesn't know where the components [of today's cars] are coming from," he said. "The American consumer wants a quality car. We used to worry about quality from Japan. Then we worried about quality from Korea."

The deal could be a breakthrough for Chrysler and its efforts to sell small, fuel-efficient cars. But since the DaimlerChrysler supervisory board approved a limited partnership in late February, it agreed to sell control of Chrysler to Cerberus.

As for the timing of when Chery cars might be available here, LaSorda told CNNMoney.com in January that it would take "at least a couple of years."

Chrysler currently has has no B-segment subcompact offering. Toyota Motor (Charts), Honda Motor (Charts) and Nissan (Charts) introduced new models to the segment last year. But U.S. automakers generally have struggled in this segment of the market, which includes the Honda Fit, Toyota Yaris, Nissan's Versa and the Chevrolet Aveo. Ford Motor (Charts, Fortune 500) also has no B segment offering.

The B segment has seen strong growth in the last year in the face of high gasoline prices. Sales tracker Autodata estimates that the segment's U.S. sales jumped 59 percent in 2006 to 314,225 vehicles from just under 200,000 in 2005, including the Versa, which Autodata tracks separately.

All those B segment cars are imports. Even General Motors' (Charts, Fortune 500) Chevrolet Aveo is built by the company's Korean unit.