THE sale of Chrysler Group by DaimlerChrysler AG leaves questions regarding the floundering unit's development in China.
Yesterday, Chery Automobile Co Ltd, which formed a partnership with Chrysler to make its small-engine compacts, reportedly halted the project, according to the German newspaper Handelsblatt.
The financial daily said Chery, China's fourth largest car maker, has asked for a review of the agreement in light of the Chrysler sale a week ago.
"We continue to be in talks with Chrysler, but we don't have any contact with the new owners yet," Handelsblatt quoted Zhang Lin, the general manager of Chery.
According to the original agreement, Wuhu, Anhui-based Chery produced Chrysler compacts under licensed production and sold them overseas.
In the second phase, Chery is contracted to help Chrysler develop new energy efficient cars with both sides having the option to deepen cooperation through a joint venture.
By doing this, Chery will benefit from advanced technology and better access to the overseas markets. Chrysler looks to benefit from a low-cost partner, as well as rolling out small compacts amid soaring oil prices that may reduce its reliance on the United States market.
Another source from Chery, who is responsible for one division of the firm's cars, told Shanghai Daily that talks on the second phase have been delayed and it was unknown if they would restart.
"As long as Chrysler is interested in small subcompacts to win a bigger market share around the world, the deal will work out regardless of Chrysler being sold," said the person, asking not to be identified.
The pending cooperation came one week after DaimlerChrysler, the world's fifth largest car maker, agreed to sell its money-losing Chrysler unit to private equity firm Cerberus Capital Management LP. The deal was worth US$7.4 billion for an 80 percent stake.
The future Daimler AG will retain a 19.9 stake in Chrysler.
The share sale did not seem to shake Chrysler's confidence in its plans for China, where the auto market expanded more than 25 percent annually in the past two years.
"China will continue to be an important market for Daimler and Chrysler, and we are continuing to move forward with all our projects," a statement from DaimlerChrysler Northeast Asia said yesterday.
Also, Mary Gauthier, a spokeswoman for DaimlerChrysler AG in Stuttgart, said last week after the sale that global growth will be an important driving force for Chrysler's transformation and recovery plan. The sale to Cerberus had not changed those goals, she added.
However, analysts expect the separation of Daimler and Chrysler will have a spin-off effect.
"The Chinese business is facing uncertainty as the company may change its strategy in production, distribution and partnerships, even if it's not during the current transitional period," said Zhong Shi, an independent auto analyst.
DaimlerChrysler has two other partners in China - Beijing Automotive Industry Corp and Southeast Motor Corp.
The 50-50 joint venture between Beijing Auto and DaimlerChrysler fulfilled the later's ambition to localize production of Mercedes-Benz models two years ago, as well as the Chrysler 300C sedan last year.
The company, as a late comer to the market, is banking on the quicker market response and lower costs to catch up with rivals in the passenger car segment.
"There definitely will be some change in cooperation, either in share holdings or distribution as they will be two independent companies now," Zhong told Shanghai Daily.
The Beijing Benz DaimlerChrysler Corp has a combined production capacity of 25,000 units for Mercedes-Benz E-class and C-class sedans annually. Monthly sales of the Chrysler 300C was around 1,300 units in China.
Lang Xuehong, director of industry research center in the automotive division at SinoTrust consulting firm said: "There could be some change in Beijing Benz DaimlerChrysler, but it will take time as both products share manufacturing facilities."
Media reports have said that Beijing Auto is actively seeking setting up a separate venture with Chrysler as an expanded product line-up could bolster sales and earn more profit.
Southeast Motor now produces minivans for DaimlerChrysler under licensed production. Most analysts believe it will not be affected by the divorce of Daimler AG and Chrysler.
At the Shanghai Motor Show last month, Chrysler had already accelerated its aggressive long-term plan for China.
It announced the introduction of its Dodge brand into China, including the localized production of Dodge Caravan at Southeast Motor Corp's facilities, according to Eric Ridenour, chief operating officer of the firm.
It also plans to introduce the second Chinese-made Chrysler-branded model, the Sebring sedan as early as this year.
Analyst Zhong concluded: "Regardless of the sale, China will still be a battleground for Chrysler as the 'Going East' strategy adopted by other car makers has proven effective in revving up sales."