Chery Fulwin Coupe
Greg Baker  /  AP
A model poses next to the Chery Fulwin Coupe at last year’s Beijing auto show. Chinese automakers like Chery could soon be selling low-cost vehicles in the U.S. car market.
By Roland Jones Business news editor
msnbc.com
updated 4/26/2007 9:02:05 AM ET 2007-04-26T13:02:05

The Shanghai auto show kicked off this week with up-and-coming automakers showing off sedans, trucks and SUVs in the world’s fastest-growing automobile market. But as the global automotive industry looks east, China’s carmakers have their eyes fixed firmly west — on the U.S. market.

With names like Chery, Geely and Shanghai Automotive Industry Corp., China’s small but ambitious automobile companies are not well known here in the United States but could one day become household names, just like Toyota, Honda and Nissan.

“[Chinese automakers] are all still establishing themselves in terms of products, quality and manufacturing — the very things that go into running a successful automotive company,” said Tim Dunne, director for Asia Pacific Market Intelligence at market research company J.D. Power and Associates. “But they all have exporting visions, and everyone wants to know when they’re coming to the United States.”

As China’s economic growth has exploded, the nation's auto market has vaulted from near obscurity 10 years ago to the second biggest in the world in 2006. It grew by 35 percent last year, making it the fastest-growing in the industrialized world, and it is expected to become the world’s biggest automotive market by the end of the decade, according to some estimates. More conservative forecasters say China will not become No. 1 until 2015 or 2020.

Chinese vehicle manufacturers are in their relative infancy by U.S. standards, usually only 7 or 8 years old. Many are getting help from foreign automakers in joint ventures with the likes of  General Motors and Volkswagen, who because of ownership restrictions in the country must partner with local automakers to build and distribute cars.

In fact, the burgeoning Chinese automobile market is a boon for automakers like GM, bringing in hundreds of millions of dollars a year in profit at a time when they are unable to make money in the North American market, the world’s largest.

But competition is intense, with some 25 automakers selling their wares in China, including brands rarely seen in the United States, like Fiat, Peugeot and Citroen.

Last year, some 7 million vehicles were sold in China, compared with 16.5 million in the United States, 6 million in Japan and between 2 and 4 million in European countries like Germany, France and Italy.

About 27 percent of the China sales were of Japanese bands, while Chinese brands made up 26 percent of the sales and European cars accounted for 23 percent of sales. U.S. brands made up 14 percent of the sales, and Korean brands the remaining 10 percent.

Chery Automobile, which sold just over 300,000 vehicles in China last year and exported 50,000, is widely seen as the leading Chinese brand.

Chery partnered with auto importer Visionary Vehicles, run by entrepreneur Malcolm Bricklin, to sell its cars in the United States by 2007, but after disagreements over finances, design and delays, the deal broke down. Chery still intends to sell vehicles in the United States and is reportedly pursuing its own export plans. Late last year, Chery signed a deal to build small cars under a Chrysler nameplate to be marketed in the United States and Europe.

Chery’s factories use state-of-the-art manufacturing processes and equipment, and the company gets a lot of government support according to J.D. Power’s Tim Dunne.

“It looks like the Chinese government has singled them out as a test bed for developing an automaker that’s competitive on a world scale,” he said. “They are bringing out all kids of new designs and product plans and hiring the world’s best engineers and designers.”

The Chinese government is taking steps to ensure the company’s automakers don't flood the world’s markets with cheap, inferior cars, notes Dunne. Last summer the government said it plans to limit the number of Chinese companies exporting vehicles.

“To safeguard their image, the Chinese government would like to see a measured approach to the U.S. market,” Dunne said. “They know the Chinese economy has been surging because it makes lots of inexpensive consumer goods like toys, bicycles and microwave ovens en masse, but now they’d like to graduate to more sophisticated products, and they’re going to do that gradually and methodically, because there’s no need to rush and that’s how others have failed in the past.”

Chinese automakers hope to avoid repeating the mistakes of Korean and Japanese carmakers, which took many years to establish a reputation for quality.

"I don’t think the Chinese will be an overnight sensation over here,” he said. “Based on past history of other companies, the U.S. is a hard market to crack. And they know about the missteps other automakers made in the United States over the last 20 to 30 years, so they want to avoid that.”

Dunne also notes that Chinese brands enjoy significant advantages in China’s domestic market, which is far from saturation. They understand the local markets, and are largely protected from foreign competition by the ownership restrictions. Chinese carmakers also have opportunities in other global markets where there is less risk, like the Middle East, Southeast Asia, Africa and  Latin America.

“They can learn in these markets,” Dunne said. “They are gaining experience in these areas first, getting everything more settled before they enter the U.S. market. Some are saying they’ll start selling cars here in 2008, or in 2009, but I think 2010 is more realistic.”

Chinese automakers are determined to crack the U.S. market, Dunne says. Four Chinese automakers he visited lately all have teams of researchers in the United States, driving across the country to document Americans’ vehicle preferences and driving habits.

The concern is that given the low cost of labor in China, Chinese automakers will offer lower-cost models that will undercut the products offered by Detroit’s Big Three as well as by European and Asian makers. But Dunne doesn’t think the Chinese entry into the U.S. market will be cataclysmic.

“It’s tough to compete on price today because you can get very good, new inexpensive cars from Detroit or Japanese carmakers,” he said. “What Americans want is vehicle dependability, and so you had better have a dependable product if you’re competing on price. If you have a choice between a brand new Chinese car for $10,000 and a two- or three-year-old lease car from a global brand you trust for roughly the same price, you’re just as likely to go for the global brand. So I don’t think will see a massive shift.”

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