Chrysler & Chery Deal: Made In China, Sold In America

Mark it down. It was this Tuesday, July 3rd--on the eve of America celebrating its independence--when one of the Big 3 made the first deal to have an American brand car built in China and sold here in the U.S.

CNBC.com photo composite

Chrysler and Chery

The deal is between Chrysler and Chinese automaker Chery Automotive. Chrysler CEO Tom Lasorda signed the agreement with Chery's CEO in Beijing and heralded it as a "win/win deal". Chery wins because it's collaboration with Chrysler will help that company learn the ropes of what it will take to ultimately sell Chery vehicles in the U.S.

For Chrysler, having compact and sub-compact cars built less expensively in China could be the key to being more competitive (at a profit) in small cars.

This agreement will no doubt fan the flames of nationalism with Americans who think it's outrageous to have a Chrysler built in China, shipped to the states, and sold in America. But beyond that, does this deal make financial sense for Chrysler?

Yes. Here's why.

Chrysler needs to do better in compacts and subcompacts. If it's going to make money on cars selling for $10,000-$15,000, the company needs to try a new approach. That's where Chery comes in. In addition, Chrysler's new owners at Cerberus want to grow the brand outside the U.S., where the Chrysler brand is virtually no-existent. There is serious growth potential in Europe, Asia and Latin America for Chrysler. The idea is to enter those markets with well-built and profitable sub-compact.

Sure Chrysler and Chery have a lot of issues to work out (including whether Chery can build a car to higher specs and safety standards than in China), but this is a good first step.

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