Chrysler and China’s Chery Automobile have abandoned plans for a partnership to produce small cars for the North American market. The two companies have “mutually agreed” to cease strategic discussions, Chrysler said in a statement. The news follows rumors from mid-November indicating talks had fallen apart.

The two firms have been in talks since July 2007 about various plans that could have lead to Chery building ultra-compact Chrysler-badged models. At one point, Chery was being considered to produce the Dodge Hornet, but Chrysler ultimately decided to use Nissan for that job.

“The economic situation and market environments around the world have changed significantly since the agreement was signed,” Mike Manley, Chrysler executive vice president of international sales and marketing, said in a statement. “Moreover, both companies have since gone through major internal changes and evolution, resulting in different business directions and priorities versus a year ago. As a result, many of the original premises the two companies had when entering into the agreement no longer apply.”

Despite the fallout, Chrysler still needs a competitive market for the U.S., so look for a Dodge-badged Nissan Versa to hit the streets early next decade.

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