Chrysler Chery deal in trouble
It was one of the last moves Tom LaSorda made as CEO at Chrysler, right before the company was purchased by Cerberus: he cut a deal with Chery to produce cars in China for the United States market. They were to be marketed here as Dodges. But, shortly afterward, Chery vehicles failed safety tests in other markets and Chinese goods generally have developed a reputation as shoddy, if not downright lethal.
Now, according to financial daily Financial Times, Chrysler is acknowledging that the Chery products aren’t ready for prime time. According to Phil Murtaugh, the new head of Chrysler’s Chinese operations (and formerly GM’s top man there), “[s]ince we signed [a memorandum of understanding] Chrysler and Chery have been working very, very hard to execute that. Both [companies] feel that our products are not quite ready to meet the requirements of those [export] markets and we are working very hard to solve [the problems]."
Murtaugh is considered the godfather of the very successful General Motors operation in China and has lots of hands on experience with the country’s manufacturing processes. The implication of his remarks was that Chery had a long way to go before what it had been proposing to produce would be acceptable to Chrysler for sale in the United States. "Obviously, quality is an issue that has to be addressed and both Chrysler and Chery have to be convinced that we are ready to meet the market demands," he said. Chrysler has previously indicated an interest in outsourcing a somewhat larger small car than that contracted to Chery, but said it was not interested in making a deal for that platform with Chery.
The acknowledgement means that one avenue which Chrysler had planned to use to catch-up in the small car market is likely to take much longer than expected, if not completely fail to materialize. Since the advantage to Chrysler in the Chery deal was bring a car to the U.S. market rapidly while simultaneously minimizing its own investment in producing it, the deal with Chery looks very much like it is unraveling. The deal no longer appears to offer Chrysler the advantages it had anticipated.
Chrysler may also have concluded that bringing a Chinese vehicle to market in the United States at this point was not good for its public image. Chrysler has long had among the worst reputations for reliability and quality. A Chinese car would probably make that perception even worse. (Can’t you hear the Leno lines about the reliability of a Chrysler made in China?)
Whatever the reasons, the new Chrysler seems to be making some very decisive moves. Cutting its losses and dumping losing propositions is the first step to recovery in any business. Their management doesn’t seem to be losing any time doing just that.