Chrysler May Expand Ties to Chery as Sale Talks Go On

DaimlerChrysler AG's Chrysler unit is negotiating to expand its relationship with China's Chery Automobile Co. to include auto parts and a wider range of car models, people briefed on the issue said.

The discussions, which include parts such as transmissions, are at an advanced stage and come amid continuing talks on a possible sale of the U.S. unit, said these people, who don't want to be named because the plans are secret. Chrysler in December picked Chery to export small cars from China, and the companies are now focused on adding models to that plan. DaimlerChrysler Chief Executive Officer Dieter Zetsche said Feb. 14 he's pursuing ``all options'' for Chrysler.

DaimlerChrysler is in separate, concurrent talks with potential buyers of Chrysler such as General Motors Corp., the people said. Sales discussions are in the early stages and more bidders may emerge, people familiar with the matter said. Chrysler lost $1.5 billion last year and is cutting 13,000 jobs.

``Chrysler could be hedging its bets and continuing down the same road they had started before talking to GM,'' said Rebecca Lindland, a Global Insight analyst in Lexington, Massachusetts. ``It's not unreasonable for them to want to be in China.''

Chrysler CEO Tom LaSorda said Feb. 14 that the Auburn Hills, Michigan-based automaker would expand the use of alliances and partnerships worldwide as part of a plan to return to profit next year. Chrysler spokesman Markus Mainka had no comment about the possibility of an expanded relationship with Chery.

Chery President Yin Tongyao, reached by cell phone, wouldn't comment on cooperation with Chrysler, new models or joint production. LaSorda said in December that Chrysler had a letter of intent for Chery to build small cars for the U.S. automaker.

First Auto Exporter

Chery is China's first vehicle exporter and has said it wants to increase sales 29 percent this year to 393,000 vehicles after they rose 60 percent last year and doubled in 2005.

The company, owned by the Wuhu city government and based in Wuhu, Anhui province, is the first Chinese automaker to assemble cars abroad. It has production agreements with partners in Iran, Malaysia, Bangladesh and Argentina.

GM is still talking to Chrysler about joint engineering of large sport-utility vehicles, the people said. GM models such as the Chevrolet Tahoe are bigger than Chrysler's largest SUVs, the Dodge Durango and Chrysler Aspen.

Transmission Plan

In addition, a Chrysler plan to develop more fuel-efficient transmissions with Germany's Getrag GmbH will result in a U.S. plant, people familiar with that proposal said. Chrysler confirmed in October it had applied for environmental permits for a transmission plant at three Indiana locations. Karin Burgmer, a spokeswoman for Getrag Ford Transmission GmbH, had no comment.

The Indianapolis Star reported in October that the Indiana transmission partner would be Ludwigsburg, Germany-based Getrag. Chrysler said last week it will spend $3 billion on new engines, transmissions and axles to make its vehicles more fuel efficient.

DaimlerChrysler will be selective in sharing financial information with potential buyers of Chrysler, spokesman Jason Vines said last week. The company will vet candidates through investment bank JPMorgan Chase & Co., he said.

It may be ``weeks or months'' before official comments can be made on some issues about Chrysler's future, LaSorda told employees in a Feb. 22 letter. Zetsche and the management board of Stuttgart, Germany-based DaimlerChrysler ``strongly endorsed'' Chrysler's plan to end losses, LaSorda wrote.

GAZ Group, a Russian maker of cars and trucks, declined to comment today on a report in the German weekly magazine Focus that it might bid for Chrysler. GAZ in April bought a license from DaimlerChrysler to make its own vehicles based on the Chrysler Sebring and Dodge Stratus sedans.

Magna's Interest

Canadian auto-parts maker Magna International Inc. is ``seriously considering'' buying Chrysler and has taken steps such as visiting all of its properties and meeting with union leaders, Brett Hoselton, a KeyBanc Capital Markets analyst, wrote in a report today. Hoselton, who didn't say where he got the information, called the purchase unlikely.

Tracy Fuerst, a spokeswoman for Aurora, Ontario-based Magna, declined to comment.

The Financial Times today reported that DaimlerChrysler may be considering taking a stake in GM as part of the discussions, quoting people familiar with the situation. Renee Rashid-Merem, a spokeswoman for Detroit-based GM, had no comment.

Chrysler might have an equity value of about $5 billion, Ron Tadross, a Banc of America Securities analyst, wrote in a Feb. 14 report. Chrysler could add as much as $9 billion in value to GM, Citigroup analyst Jon Rogers said in a Feb. 20 report.

Joint Ventures

Chrysler already makes pickups for Mitsubishi Motors Corp. and plans to build minivans for Volkswagen AG. It develops engines with Mitsubishi and Hyundai Motor Co. and uses parts from Nissan Motor Co. units, Volkswagen and Mitsubishi in some models.

GM, DaimlerChrysler and Bayerische Motoren Werke AG have a $1 billion joint venture on gasoline-electric transmissions. The first models using that technology go on sale this year.

DaimlerChrysler, the world's fifth-biggest automaker, has been working with Chery on preliminary designs, and the vehicles the Chinese company makes would be new models. Financial details and production volumes haven't been disclosed.

``We need a Chinese partner who can help us boost revenue and keep costs under control,'' LaSorda said in November.

Until November, Chery had been working with investor Malcolm Bricklin to build vehicles for Visionary Vehicles LLC. Bricklin said he pulled out of the agreement, in part because Chery was still talking to other automakers about partnerships.

DaimlerChrysler's U.S. shares fell 35 cents to $70.57 at 4:18 p.m. in New York Stock Exchange composite trading. They have risen 9.5 percent since Feb. 13, the day before Zetsche said the company may consider a sale or other options for Chrysler.

Credit-default swaps based on 10 million euros ($13 million) of DaimlerChrysler debt rose less than 0.5 percent to 38,505 euros, according to Credit Market Analysis in London. Credit- default swaps are based on corporate bonds and are used to speculate on a company's ability to repay debt. A decrease indicates an improvement in credit quality.

source:www.bloomberg.com