Nissan may build mid sized sedans for chrysler

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According to the WSJ:

Chrysler LLC is in talks with Nissan Motor Co. about jointly producing midsize cars, a partnership that would move the U.S. auto maker toward a radical new business model.

The two companies agreed earlier this year to team up on pickup trucks and subcompact cars. Since then, they have been discussing an agreement under which Nissan would produce midsize sedans that Chrysler would sell in the U.S. under its own name, people familiar with the matter say.

A Chrysler spokesman said the company has "no new alliances" to announce, and declined to comment on any discussions it might be having.

A deal would signal a dramatic change in the way Chrysler operates, at least in its passenger-car business. For decades, major auto makers have taken pride in marketing their vehicles as products of their own engineering. Chrysler plans to continue developing new trucks, sport-utility vehicles and minivans itself, from the ground up.

A partnership with Nissan on midsize sedans would put Chrysler on a path to becoming a marketer and seller of cars made by others. Under its earlier agreement with Nissan, which is based in Japan, Chrysler will start selling a subcompact car made by Nissan by about 2011. Chrysler also has a deal under which China's Chery Automobile Co. will make small cars for it.

This outsourcing approach has worked for computer makers such as Dell Inc., which relies on key suppliers to develop major components, and does limited engineering itself. For certain products like laptops, Dell has contract manufacturers assemble the computers.

For the auto industry, using such a model on a wide scale could prove risky. Sophisticated car buyers who are aware that Nissan is manufacturing sedans for Chrysler might simply buy Nissan's version of the car. Success of such deals "comes down to marketing and branding," says Michael Ward, an automotive analyst at Soleil Securities Group.

Some auto makers have tried the approach in the past, mainly for low-volume niche vehicles. General Motors Corp. and Toyota Motor Corp make small hatchbacks together in a plant in California, Mr. Ward notes. But Toyota's model, the Matrix, sells in greater volume and at higher prices than the GM version, which is marketed as a Pontiac Vibe.

A few years ago, GM struck a deal with Subaru, at the time its partner, to make a small car that GM modified slightly and sold under its Saab brand. The car flopped and was pulled from the market.

Outsourcing the engineering and development of cars could offer one big advantage for Chrysler and its majority shareholder, Cerberus Capital Management LP: It could save Chrysler the billions of dollars it costs to develop a full line of vehicles in-house.

That could help bring the company back to profitability, even though its vehicle sales are declining. Getting Chrysler to generate positive cash flow is a key priority for Cerberus, which acquired an 80.1% stake in the auto maker a year ago.

Cerberus's foray into the auto industry has been hampered by a deep downturn in U.S. vehicle sales, along with a sudden shift in consumer preferences to small cars and away from trucks and SUVs. Those trends have hurt Chrysler, whose line of about 30 models includes just one compact car. Its sales have fallen about 25% this year.

Chrysler is focusing its engineering resources on parts of the market where it is a strong player -- mainly trucks, SUVs and minivans, says one person familiar with the company's strategy. "We're still in engineering," this person says. Working with partners on other models saves money and allows the company to add models that would be costly to produce by itself, this person says.

In an interview last week, Chrysler Vice Chairman Jim Press said the company is working hard to understand precisely what American consumers want in midsize sedans. The effort, known internally as Project D, "is a totally customer- and market-focused project," he said.

People familiar with the specifics of Project D say the team has been in touch with Nissan and is evaluating whether it makes financial sense to partner with the company.

In addition to its earlier deals with Nissan and Chery Automobile, Chrysler has formed a group, called ENVI, that is responsible for finding partners that can help Chrysler bring out hybrids and fuel-efficient vehicles.

Chrysler is currently trying to decide how to add a new midsize sedan to its lineup, people familiar with the matter say. Nissan is working on a redesign of its well-received Altima sedan. The talks have centered on having Nissan produce a version of that car for Chrysler, these people say.

It's still possible that Chrysler will decide to develop a new sedan on its own, or to work with a partner other than Nissan, these people say. Chrysler currently offers two sedans -- the Chrysler Sebring and Dodge Avenger. But sales of those models have fallen far short of expectations.

Chief Executive Robert Nardelli and Mr. Press, the vice chairman, are convinced Chrysler must become competitive in the sedan segment because midsize cars represent a huge chunk of the U.S. market.

Toyota and Honda Motor Co. have the top-selling sedans in the Toyota Camry and Honda Accord. Broad awareness of those models brings hordes of car buyers into their dealerships.

[raman noodles]

Makes sense since chrysler is going to build HD trucks for nissan.  They don't have to do any work and they get full size and HD trucks in exchange for some cars.  Pretty good deal for them if you ask me.

[hemiram]

I hope this is as far as it goes.  Chrysler is going to turn into target or kmart selling brand names on products they don't make.  If they can get more cars from nissan out of the deal for making the titan then I say good, but chrysler is the one that should be making cars for other people.  Not the other way around.