Chery Automobile of China is the leading candidate to produce a small car for the Dodge brand, which is part of Chrysler. The group wants an entry-level car positioned below the Dodge Caliber to drive expansion plans for Europe.

Western Europe will be the Chrysler group's key market area when the new small car comes on stream according to CEO Tom La Sorda. Chrysler has been looking for a partner to build a small Dodge because of the high costs and small profit margins.

The talks have been going on since the beginning of the year with a number of potential partners according to La Sorda. "We are down to two and Chery is the leader."

He did not say who the other car makers his company was having talks with were but sources believe it may be PSA Peugeot/Citroen or Korean manufacturer Hyundai.

La Sorda said that the partner could co-design a small car with Chrysler or develop it alone and he has hinted that more small cars could follow as a result of the partnership.