When Chery Automobile cars first appeared outside of China in 2001, they were ridiculed as a cheap attempt to trick purchasers into thinking they were buying Chevy vehicles instead of Chinese knockoffs.
These days, however, when industry watchers talk about the future of the auto industry, Chery's name and its lines of cute, gas-efficient cars elicit excited talk.
The company has done so well — it is now the No. 1 independent automaker and auto exporter in China, with business in 30 countries — that when DaimlerChrysler announced this month that it may be interested in selling off its flailing Chrysler unit, many analysts mentioned Chery as a potential suitor.
Chery spokesman Wang Wei denied any such deal was in the works, and many industry analysts in China were skeptical about a merger, citing Chery's small size and potential political hurdles.
Harry Zhao, an auto analyst for CSM Worldwide in Shanghai, ruled out a wholesale buyout of Chrysler by Chery. "Almost impossible," he said.
"Premature," concluded Michael Dunne, vice president of J.D. Power and Associates' Asia Pacific division.
Chery sold just over 300,000 cars last year — roughly 25,000 of which were exported. This year, it is expected to sell nearly 400,000. But a single auto plant in the United States produces that many cars in a year.
Politics also stands in the way, analysts said. "At this stage, with tensions between the United States and China, an acquisition of a Detroit carmaker by a Chinese state-owned enterprise would be politically unpalatable," Dunne said.
Instead, Dunne said, Chery may seek to exploit another possible outcome of a Chrysler deal. Analysts have speculated that a private-equity company might want to buy the Chrysler unit and then sell it off piece by piece. In such a case, Chery could pass up the manufacturing plants and other assets but seek to buy the Dodge brand.
Chery's biggest competitive advantage is that it excels at manufacturing small, gas-efficient vehicles at low cost. This week, DaimlerChrysler said it would expand a partnership with Chery that it initiated earlier in the year under which the Chinese automaker would build small cars for sale by Chrysler in North America and Western Europe.
Aside from Chery, securities analysts have floated a number of auto companies as potential buyers for Chrysler. But many European and Asian carmakers are either overstretched, underfinanced or simply not prepared to swallow an operation as large as Chrysler, the analysts said.
While not ruling out a possible bid by General Motors, John Murphy, an analyst with Merrill Lynch, said a more natural candidate for Chrysler would be an automaker seeking to establish, or widen, a foothold in North America. In a recent report, Murphy mentioned Nissan, Chery and Shanghai Automotive as potential suitors.
"More important than an immediate production/brand footprint in North America would be Chrysler's dealer footprint, which is extremely difficult and expensive for a new manufacturer to replicate," he wrote. "Conversely, this may be one of the most important reasons GM would make a defensive bid for Chrysler."
Jim Sanfilippo, a senior industry analyst at AMCI, an automotive consulting firm in Bloomfield Hills, Mich., said he didn't expect a firm like Chery to make a significant move into the United States right now.
But, he added, Chinese auto firms could be a serious presence in the United States in as little as three years. He expects them to move not through acquisitions, but by setting up their own operations as Kia and Hyundai did before them.
"They're students of this business, and they've got incredibly able engineers," he said.
That Chery is now included in discussions of Chrysler's future is a major milestone for the provincial company that was founded only nine years ago.
Chery's initial purpose in 1997 was to help the economy of Wuhu, a city about 150 miles west of Shanghai, but even in those early days, Chery was a rebel. According to its official government registration at the time, Chery was just a car parts supplier. Its first assembly line was constructed in secret and in violation of laws that allow only those companies with special licenses to create cars.
The move was daring, though not unheard of in those days, a time when everyone sought to grab a role in an economy that was just starting to take off. Initially, Beijing was livid, but as Chery quickly grew, the central government began to hold it up as a model company for the rest of the nation.
Under the leadership of Yin Tongyao, a native of Anhui (Wuhu's province) who worked at the Volkswagen joint venture for more than 10 years, Chery became a global player.
Yin stacked his top management with overseas Chinese who had previously worked for Ford, General Motors and Chrysler. In 2001, Chery became the first Chinese automaker to sell cars abroad when it sent its first export to Syria.
Chery made international headlines in 2005 when it announced that it had teamed with veteran auto entrepreneur Malcolm Bricklin and Visionary Vehicles. The companies announced that they would sell five lines of cars designed by Chery, 250,000 in total, in the United States by 2007. The deal has since fallen apart.
There has been talk of an initial public offering as early as 2008, but for now Chery essentially remains a state-owned enterprise with strong backing from both the local and central governments.
The Chinese car market is among the most fragmented in the world. According to customs figures, a total of 1,025 firms — which includes manufacturers as well as trading companies — exported vehicles, with 600 of them shipping fewer than 10 units abroad. About 173,000 units were exported in 2006, and 300,000 are expected to be shipped this year.
The Chinese government has aggressively supported the expansion of domestic automakers — its goal is for Chinese cars to make up 10 percent of the world's auto trade in the next decade — and has introduced measures to protect the image of these cars abroad.
The government has also helped provide financing for the companies' expansion. So, if Chery is looking for a U.S. partner, money isn't expected to be much of a problem.
Tse reported from Washington. Staff researcher Richard Drezen contributed to this report.