Nissan, Chrysler Product Tie-Up Under Review

Nissan Motor and Chrysler on Thursday they had halted work on a product-based tie-up while both sides consider how to improve the projected financial returns on the 10-month-old deal.

2009 Nissan Maxima

Under the agreement, Nissan was scheduled to have supplied Chrysler with an all-new, fuel-efficient small car made in Japan in exchange for a full-size pickup truck made by Chrysler in Mexico.

The move to review the terms of the deal threatens to unravel a tie-up between the two companies that both had touted as a low-cost way to fill in gaps in their product line-ups when it was announced last April.

Nissan said it would still supply Chrysler with a compact car based on its Versa model for the U.S. automaker to sell in South America beginning later this year.

But Japan's No. 3 automaker said it would review plans to build an all-new small car for Chrysler to sell around the world in 2010.

In exchange, Chrysler was to have built a full-size pickup truck for Nissan at its assembly plant in Saltillo, Mexico.

But global auto sales have tumbled since the deal was announced, and Chrysler's ability to survive as a stand-alone operation remains in question as it restructures after taking $4 billion in U.S. government funding.

In addition, Chrysler owner Cerberus Capital Management last month offered Italy's Fiat a 35 percent stake in the struggling U.S. automaker in exchange for access to Fiat's small-car technology.

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That tie-up, which is contingent on Chrysler winning another $3 billion in federal aid and demonstrating that it can be made viable, had been widely seen as a potential complication for the earlier Nissan tie-up.

Before the Fiat alliance was announced, Nissan and its partner Renault had been seen as potential partners for Chrysler and had been approached about buying assets from the automaker, according to people familiar with those talks.

Nissan said the product based tie-up had been frozen so that the two companies could ensure that they can meet their profit targets under the deal.

Chrysler said in a statement that the companies had agreed to take the current quarter to work out ways to improve the profitability of the arrangement.

Nissan, like its rivals, has been hit by the slump in auto sales, led by a U.S. market in collapse. January U.S. auto sales dropped to a 27-year low and early February results show now sign of a rebound, according to dealers and executives.

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