Chrysler and Nissan unveil production alliance

By David Bailey and Soyoung Kim

DETROIT (Reuters) - Chrysler LLC <CBS.UL> and Nissan Motor Co Ltd <7201.T> unveiled a production alliance on Monday that gives the U.S. automaker the small car it lacks and allows the Japanese company to stay in the competitive full-size U.S. pickup truck market.

Chrysler and Nissan built on a smaller agreement the companies announced in January, but executives from both companies said the new arrangement was purely a production deal and declined to say whether they plan further financial ties.

Under the terms of the deal, Nissan will build a small car for Chrysler using the North American automaker's design in 2010 and Chrysler will build a new full-sized pickup truck for the Japanese automaker using Nissan's plans in 2011, the companies said.

Chrysler's new small car will be built in Japan and sold in North America, Europe and other global markets. The car will be built on an undisclosed new Nissan platform.

The pickup will be built at Chrysler's plant in Saltillo, Mexico, using the light duty Dodge Ram as a base. Chrysler will shift production of pickup trucks from that plant to U.S.-based assembly plants to make room for the Nissan production.

The arrangement follows an announcement in January that Nissan would supply a car based on the Nissan Versa sedan to Chrysler for limited distribution in South America.

Dominique Thormann, senior vice president, administration and finance for Nissan North America, declined to discuss the possibility of deeper ties between the automakers.

"This is an OEM exchange. We don't have a business discussion ongoing currently," Thormann said, adding that Renault, a 44 percent owner of Nissan, was not a party to the agreement.

The alliance addresses a hole in Chrysler's truck-heavy product line-up the automaker had been struggling to address even before former parent Daimler AG sold an 80 percent stake to Cerberus Capital Management LP last year.

Since the Cerberus acquisition, analysts have suggested Chrysler would seek a larger partner as its new private equity owner looks toward an eventual exit strategy for the carmaker.

Analysts have said Chrysler cannot survive as a standalone entity that lacks an international presence, in particular in the fastest-growing areas of the emerging markets.

CHERY STILL IN CHRYSLER PLANS

Chrysler executives, including co-president and production chief Tom Lasorda, have repeatedly said they could not justify the capital investment required to develop a small car without a partner to defray some of those costs.

At the same time, Chrysler has been looking to sell more of its vehicles outside North America, a move that analysts have said increases the need for it to have its own small car.

Chrysler had been negotiating a deal for China's Chery Automobile to build a global small car expected to be based on the Hornet concept that it has already displayed.

Chrysler said Chery remains firmly in its plans, although it would be some time before Chery vehicles would be ready for export to North America and Western Europe.

At the same time, the product tie-up brings Nissan closer to its goal of having a full-fledged North American partner.

Last week, Nissan announced plans to shift some of its North American production capacity from retail-oriented light trucks, a step that anticipated Monday's announcement.

Nissan said it would invest $118 million to shift production at its Canton, Mississippi plant to light commercial trucks and vans for the U.S. market, an area now dominated by General Motors Corp <GM.N> and Ford Motor Co <F.N>.

The plant has been producing the Nissan Quest minivan, the Infiniti QX56 luxury SUV and Titan full-size pickup truck.

Production of the current generation Titan will continue for another 32 months at the plant, Thormann said, adding the truck produced by Chrysler will be a full-size equivalent to the Titan, although a name has not been selected.

Nissan expects employment at Canton to be unaffected, with Titan production phased out as light commercial vehicles are gradually rolled out, he said.

Nissan was rebuffed in an earlier attempt to clinch a global tie-up with GM under a proposal that had been brokered by dissident GM shareholder Kirk Kerkorian.

The Japanese automaker has been marginalized in the increasingly competitive market for full-size pickup trucks, a segment that has been hit hard by the downturn in the U.S. construction industry.

Ford, GM and Chrysler still dominate the full-size truck market although Toyota Motor Corp <7203.T> is making inroads with its redesigned Tundra.

(Additional reporting by Kevin Krolicki; editing by Carol Bishopric)