Chrysler, with a new owner and a new boss, is placing a big bet on a fledgling Chinese automaker.
The Chery A1 is a cute little car. It's a four-door hatchback, with a 1.3-liter engine, dual air bags and antilock brakes. The two-tone interior, with air-conditioning, power windows and a CD player, is surprisingly appealing for a car that sells for just over $7,000 in China.
It may not quite live up to American standards. The engine needs refinement, and some parts don't fit as well as they should--not to mention concerns about the safety of anything made in China these days. But it's just the type of low-cost small car Chrysler needs if it hopes to grow both here and overseas. Divorced in August from Germany's DaimlerChrysler (nyse: DCX - news - people ), it has a new owner, Cerberus Capital Management, and a new chief executive, former Home Depot (nyse: HD - news - people ) boss Robert L. Nardelli.
The automaker's future hinges less on a change in ownership than on a change in strategy. Right now Chrysler is a regional player, with all but 8% of its $62 billion in sales coming from North America, compared with General Motors (nyse: GM - news - people ), which gets half its sales from overseas. And Chrysler is overly dependent on gas-guzzling trucks: 68% of its U.S. sales are pickups, minivans and SUVs, compared with 60% at GM. Yet Chrysler, which lost $2 billion in the first quarter, can't afford the $1 billion or more it would take to develop a new generation of minicars. Nor does it have the small, efficient engines it would need to power them. Chrysler's smallest offering now is the Illinois-built Dodge Caliber. Considered a subcompact in the U.S., it is still too long (174 inches) and wide (69 inches) for many foreign markets.
Chrysler's small-car solution, instead, lies with Chery Automobile, a Chinese carmaker with bold ambitions of its own. Chery has been building cars for just eight years but is already China's fourth-largest auto manufacturer, with sales of 300,000 vehicles in 50 countries last year, and plans to sell 1 million cars a year by 2010.