Rising fuel prices, which have led to flagging sales of SUVs and pickups, have also forced the Detroit 3 to cut production and layoff thousands of workers. At the same time, Japanese carmakers, which lead the industry in the compact car segment, have been benefiting from record sales as consumers downshift to smaller and more fuel-efficient vehicles. American carmakers are now rushing to get small and mid-sized vehicles onto the market, and have already made several major announcements in the past month alone.

Last week Chrysler’s vice president for international purchasing, Thomas Hausch, confirmed plans to produce a compact car based on the 2006 Dodge Hornet concept and revealed that an official announcement would be made soon. Now AutoWeek is reporting that a production version of the Hornet will be built by Nissan next year and that it will be marketed as a premium hatch under the Chrysler brand as a rival to cars like the Mini Cooper.

In January, the two carmakers jointly announced that Nissan will begin building a car for Chrysler at its Oppama, Japan, factory in 2009 for the 2010 model year. New reports claim the car will be based on the Nissan Versa, and not simply a rebadged model as previously thought.

Chrysler will still rely on its partnership with China’s Chery Auto to supply budget small cars for sale in South America and eventually North America as well. No U.S. launch date has been set as development work is still underway.