Tom LaSorda (L), Chrysler Group President and CEO , shakes hands with Yin Tongyao (R), Chery Automobile Chairman and President at the signing of a cooperative agreement in Beijing July 4, 2007. [Reuters]

Independent Chinese carmaker Chery Automobile Co clinched a landmark deal in Beijing with US-based Chrysler Group yesterday to make small cars for the North American and European markets.

The first model in the partnership will be a Dodge based on Chery's 1.3-liter A1 hatchback, said top executives of the two sides.

The car, to be assembled at Chery's home base in eastern city of Wuhu, will be first shipped to Mexico before January, Chery sources said.

However, no timetable has been revealed for the launch of Chery-made Chrysler cars in the US and Europe, where other Chinese carmakers have faced quality problems recently.

Chrysler CEO Tom LaSorda said he has "no concerns" about Chery-made vehicles and both companies would develop new globally competitive products based on future Chery small-car platforms.

The tie-up with Chery will have a "nearly immediate effect" on Chrysler's offerings in the small-car segment, LaSorda said.

"This strategic partnership is part of a new business model that allows us to introduce new products more quickly, with less capital spending," he said.

Yale Zhang, director of Greater China vehicle forecasts for consultancy CSM Worldwide (Shanghai) Ltd, said Chrysler will be able to take advantage of Chery's low costs in China.

"It could be unprofitable for Chrysler to develop small cars on its own," Zhang said.

For Chery, which is growing sales at home and abroad aggressively, the collaboration will help it improve quality and design to pave the way for its own brand's forays into the US and European markets, he said.

The company said earlier that it aimed to boost sales to 400,000 cars this year from 305,000 units in 2006. It expects to double exports to 100,000 units.

Chrysler, which is being sold to Cerberus Capital Management by DaimlerChrysler in a $7.4-billion deal expected to close as early as this month, now produces the 300C large sedan in a plant in Beijing.

It plans to bring a Sebring mid-sized sedan into the Beijing plant and a Dodge Caravan minivan into another factory in the eastern city of Fuzhou later this year to further explore the Chinese vehicle market, the world's No 2 after the US.

Sales of China-made vehicles totaled 3.65 million units in the first five months of this year, up 22 percent from a year ago, according to industry data.