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Chrysler Group has signed a co-operative agreement with the Chinese carmaker Chery whereby the newly-divorced US company will work on Chinese-made small cars for the North American and European markets.

The deal, signed in Beijing today by Chrysler group president and CEO Tom LaSorda and Chery president and chairman Yin Tongyue, will see Chery cars branded as Chryslers in major Western markets.

Chrysler will modify the Chery cars to meet North American and European regulations. The two groups will then combine to develop future small cars for world markets, with the cars manufactured primarily in China.

Chery president Yin said the deal was a "win-win" for both companies.

LaSorda said: "This is the start of a very long relationship between Chrysler and Chery. Chery's participation in this agreement and their focus on small and subcompact cars will have a nearly-immediate effect on Chrysler Group's offerings in the small-vehicle segments."

He added: "This strategic partnership is part of a new business model that is allowing us to introduce all-new products more quickly with less capital spending."