Get ready for the Chinese car companies. Before you know it you'll be trying to pronounce names like Chery (not Chevy), Geely Group, Zhongxing (also known as ZX), and Nanjing. Whether you can say their names without twisting your tongue or not, if these Chinese cars succeed in the U.S., more will follow.
The rapidly growing Chinese automotive industry is getting ready to attack the American market with its first wave of products, some of them aided and abetted by a small number of American partners. Add to that the typical Chinese car production worker's annual salary of only about $2,500, giving the Chinese car companies a tremendous cost advantage over Japanese and Korean car builders -- even after the vehicles are properly equipped for America -- and you can begin to see where their cars could succeed here. The first Chinese cars will be on our shores by 2010, only two years from now, according to experts.
Some industry experts think it may take longer than two years or so for the Chinese car companies to do a proper job on product attributes, safety, emissions, and infrastructure.
"[They] are starting from scratch in a hypercompetitive environment, so they're going to study how the Japanese entered, how the Koreans entered, and then they're going to draw lessons from those strategies," said Tim Dunne, a veteran of 12 years in Bangkok and Beijing, who is now the director of Asia-Pacific market intelligence for J.D. Power & Associates in Agoura Hills, Calif.
Most of the Chinese car companies are less than 10 years old, but they are moving quickly and aggressively, Dunne said. "Their accomplishments are remarkable, considering the limited time they've been doing it, but they are a work in progress in every aspect."
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George Peterson, president of AutoPacific Group in Santa Ana, Calif., agrees with Dunne. "These guys are really several years off from being able to understand, and produce, the kind of product that would be competitive in the U.S. market, especially from the safety standpoint. You can't just meet the standard, as Chery once thought. You have to have five stars. Chery didn't understand the power of the five stars." Peterson was alluding to a series of disastrous European crash tests of three Chery vehicles, videos of which got out to the entire world on YouTube.
With these and other potential problems, some of the Chinese automakers are looking to veterans for help. For example, the new Chrysler LLC, now free of entanglements with Mercedes-Benz and Daimler, has agreed to cooperate on a number of small-car projects with Chery. Chery has only been in the car business for 10 years, but is already the fourth largest manufacturer in the home market, and has already built and sold 1 million cars and trucks.
With Chrysler's help in South America, Latin America, and eventually North America, Chery will market the Chery A1 with a Dodge badge on it, and a new car, possibly based on the Dodge Hornet concept car, will arrive in the U.S. after the A1.
Geely Group, of Zheijang, has built countless numbers of small scooters and motorcycles, and even though Geely built its first car only nine years ago, it could turn out to be a real competitor to Chery in the U.S. market. Geely, which built more than 200,000 cars last year, says that it will soon have production capacity for 600,000 cars a year under the Geely and Huapu brand names. Geely is also taking on some veteran help. They have worked out a consultancy agreement with Daewoo of Korea, and have hired experts from Mercedes-Benz and VW.
Like Chery, Geely has already shown off some of its products at major American auto shows, and has said it plans to be here by 2010. But they haven't said much about their future plans lately.
Zhanxing, or ZX, has a different business model in mind. They have signed with an American company, Chamco Auto, of Parsippany, N.J., to help them get into the American market.
Chamco, in turn, has hired California racer and high-performance car builder Steve Saleen as its president, and has made a deal with the government of Mexico to build a $300 million assembly plant there, with a production capacity of 150,000 trucks annually.
From that base near Tijuana, Chamco and ZX can build trucks and SUVs, sell them in Mexico, and export them to America under NAFTA trade rules, which means they will not have to pay import duties, which they would if the vehicles came in directly from China. Chamco chairman Bill Pollack has said that Zhanxing vehicles will start coming to the U.S. from the Mexican plant as early as the middle of next year, priced about 20 percent lower than the competition.
Still another way to our shores comes from Nanjing Automobile Group, which recently bought all rights to the hallowed MG sports car name, the Longbridge factory in England, and all of the tools necessary to build the car. Insider reports indicate that Nanjing will build an American assembly plant in Ardmore, Okla., where it will assemble somewhere between 12,000 and 20,000 MG TF coupes from parts kits exported from China. Those cars will be sold in America and Europe. The effort is headed by Duke Hale, who has worked at car companies including Lotus, Isuzu, Mazda and Volvo.
While Volkswagen and General Motors aren't Chinese car companies, both companies have stated their intentions to send low-cost, Chinese-built products to America to take advantage of the low labor costs there. VW has been operating in China longer than any other foreign car company, since 1984, and will reportedly send a Chinese version of its Passat here, working with its partner, Shanghai Automotive Industry Corporation (SAIC).
GM has built Buicks in China for years, and is reportedly contemplating sending them to the U.S. to bolster Buick's three-model showrooms. Both VW and GM are affiliated with SAIC, which in turn own pieces of Chery, Rover, and Korea's SsangYong. BMW's Chinese partner Shenyang builds a car called Brilliance that looks like an older Rover, which BMW once owned, and plans to sell them in the U.S. eventually.
Dunne says that four or five of the Chinese car companies have conducted extensive reconnaissance missions to the American market to study retailing, dealerships, quality, consumer habits and expectations, and "they understand that this is a much different game than what goes on in their home market, much different in terms of quality, service, and customer expectations. They are going to be coming in and having to compete against three-year-old off-lease cars that are of high quality, something they have not had to contend with in China."
China became the second largest market in the world last year, and Dunn projects that their home market will grow at a rate of a million vehicles a year for the next six or seven years.
"In their own backyard, before they ever go overseas, there is a tremendous potential to increase sales and experience and net customers. It's obviously a lot less complicated than negotiating, signing up a distributor, working out the logistics and contracts, and everything else that's involved in exporting vehicles overseas, making sure that the quality, expectations, and safety standards are satisfied," Dunn said. "There's less work to do in their home market."