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Ariz. dealer to sell cheap Chinese cars in U.S.

An Arizona car dealer is gearing up to become the first to sell a full line of Chinese-made vehicles in the United States at Wal-Mart-style prices he hopes will lure tens of thousands of buyers.
/ Source: Reuters

An Arizona car dealer is gearing up to become the first to sell a full line of Chinese-made vehicles in the United States at Wal-Mart-style prices he hopes will lure tens of thousands of buyers.

David Shelburg and his privately held company, China Motor Corp., want to cash in on China's fast-growing auto industry and cheap labor costs by establishing a network of 100 dealers to sell vehicles from a trio of Chinese manufacturers across the United States by the fall.

The plan is to have the dealers sell as many as 60,000 Chinese-built cars and trucks at prices starting below $10,000, by the end of the year, Shelburg's business associates told Reuters.

Shelburg, one of the first dealers to sell Subarus in the United States in the 1960s, hopes to establish himself as a discount king with business from California to Canton.

"It is going to happen," Shelburg's wife, Paula Shelburg, a corporate officer and board member China Motor, said in a telephone interview.

Analysts, however, are skeptical. They point out that most China-built cars have far inferior quality, that U.S. standards for pollution and safety are rigorous, and that even established automakers have trouble in the U.S. market.

Paula Shelburg compares China Motor to some of the Japanese car giants, while others liken it to the Yugo, the inexpensive Yugoslav car sold in the United States in the 1980s that was plagued with quality problems.

"I think we've got another example of the Yugo here," Erich Merkle, a senior analyst with IRN Inc. said, adding that Shelburg's chances of success were slim.

Analysts said the 60,000 sales target for the last four months of the year, roughly equivalent to the pace of U.S. sales for household brands such as Subaru and Mercedes , is far too optimistic. Other global automakers, such as Italy's Fiat SpA, France's Renault SA and Korea's Daewoo Motor, have pulled out of the United States in recent years when sales plunged due to poor quality.

Shelburg's company plans to import cars, SUVs and trucks made by Geely Automobile Holdings Ltd., Great Wall Automobile Holdings Co. Ltd. and Gonow, a manufacturer of motor-scooters that is entering the truck market.

Poor quality seen
"We're seeing horrendous quality coming out of China, especially from the local manufacturers," said Denton Dance, an analyst with J.D. Power & Associates, a Westlake Village, California-based research firm that specializes in the Asian market.

According to a J.D. Power & Associates survey, the quality of compact cars built in China was four times worse than those built in the United States, Dance said.

Furthermore, David Shelburg has been barred from selling vehicles in Texas after a plan to sell Chinese cars there in the 1990s fell through, leaving some dealers empty-handed, a Texas official said.

"He sold franchises to 15 dealers here and was never able to produce cars," said Carol Kent, director of enforcement for for the motor vehicle division of the Texas Department of Transportation. "He's permanently barred in Texas."

Paula Shelburg said her husband, who was in China on business last week and not available for interview, would clear his name in Texas.

Shelburg's business is attractive to dealers because he charges a franchise fee of only around $20,000, much lower than the $100,000 or more charged by major automakers, said one Texas dealer who asked not to be named.

Meeting U.S. safety standards will be a big hurdle, said Al Warner, director of the Office of Automotive Affairs for the U.S. Department of Commerce.

"Safety technology is expensive. It's quite a trick (to meet the standards)," Warner told Reuters following a speech in Michigan on Wednesday.

But China Motor officials said they were confident the Chinese cars would meet all U.S. standards and be ready for sale this fall.

Regardless of China Motors' success, Warner said it was only a matter of time until the quality of Chinese vehicles improves and makes them marketable to U.S. car buyers.

"There is a good chance that we will see good-quality vehicles from China in the U.S. -- and maybe sooner, rather than later," he said.