DaimlerChrysler has reached an agreement with China's Chery Automobile to build small cars destined for sale in North America and Europe.
The company said that Tom LaSorda, Chrysler's chief executive, had personally negotiated the deal.
"We have a letter of intent that is subject to supervisory board approval to build small cars in China," Chrysler said.
The cars produced in the deal announced yesterday would be destined "for Nafta and western Europe," Chrysler said, referring to the North American Free Trade Agreement (Nafta), incorporating the US, Canada and Mexico.
Details were not immediately available regarding either expected volumes or the launch date of the new venture, which Chrysler described as "substantial".
However, the cars are expected to be produced under Chrysler's Dodge brand.
In addition to approval by DaimlerChrysler's supervisory board, which meets next month, the deal must also be approved by China's government.
China is one of the world's fastest-growing markets for passenger cars, and Chery is a major emerging local producer. DaimlerChrysler, like General Motors, Volkswagen and many other foreign carmakers produces cars locally destined for the Chinese market.
The export-focused deal is likely to prove controversial among members of the United Auto Workers (UAW) union, which has decried the exodus of manufacturing jobs out of the US.
The union will this year hold talks on renewing its three-year contract with Detroit's three big producers, all of which are struggling to bring down manufacturing costs.
"This is not unexpected, but is likely to have negative, even explosive, consequences among autoworkers," Harley Shaiken, a professor at the University of California at Berkeley, who specialises in labour relations, said.
"It suggests what some people have feared for some time - that China will become a major exporter of automobiles."
Chrysler, like Detroit's other two big carmakers, has struggled to build small cars that could compete with Asian imports in the US, where it is saddled with high pension and other "legacy" costs.
Chery, in common with other Chinese producers, has ambitions to enter the US market but is testing its models in developing markets for now.
- Financial Times Service