Although there is much fear and loathing in the Motor City about a future of cheap Chinese-made cars invading the American marketplace, the country’s top-exporting auto manufacturer, Chery Automobile Co., appears reluctant to commit to a timetable.
“Chery places the stress to have the right quality before going to the U.S. or any of the overseas markets,” noted Zhang Lin, general manager of Chery International, while speaking at J.D. Power and Associates’ first conference held in the United States to look at the Chinese automotive industry. He was one of the keynote speakers at the meeting held November 15, 2007, in the northern Detroit suburb of Birmingham.
The unanswered question is when Chery or any other Chinese auto manufacturer will start exporting vehicles to the U.S., and Zhang evaded questions designed to elicit a rough timetable from him. He did mention, after his talk that Chery is more focused on increasing its presence in emerging car markets, such as Russia and the Ukraine, rather than immediately entering the highly competitive North American market.
J.D. Power and Associates, the firm that conducts customer satisfaction surveys and provides market analysis to companies around the world began working in China in 2000, though many of its experts had been in the country far longer, noted James D. “Jamey” Power IV, the company’s senior vice president and general manager.
“There are more than 50 OEMs (auto manufacturers) in China today, competing and scrapping it out for business,” Power said. “They also have ambitions to go global to distribute their product in the future. There’s lots of incredible opportunity and also incredible risk (for American companies wanting to do business in China).”
China has the world’s fourth-largest economy and its indigenous and foreign-based auto industry has been growing at a rapid clip since the country was admitted to the World Trade Organization in 2002. China has already surpassed India and Korea to become the number two Asia country in light vehicle production at about 8.2 million units, behind Japan which produces 10-million units annually, noted Jeff Schuster, J.D. Power executive director of global forecasting and product forecasting.
By 2014, China will far surpass Japan in vehicle production, producing an estimated 16 million units annually, India will also grow significantly, approaching 4 million units, while Japan will nudge up a little past its current 10 million unit level, Schuster added.
“In the mid-1980s, China had a vision to form 50/50 joint ventures with the (global auto manufacturers),” added Michael Dunne, J.D. Power’s managing director of China Operations. “FAW and SAIC (First Automobile Works and Shanghai Automotive Industry Corp.) would learn from the foreigners, and gradually within 10 years know enough to build their own cars. The foreigners could go or stay if they liked.”
Foreign manufacturers with joint ventures in China include Volkswagen, which once produced more than half of the country’s passenger cars, before dipping to a 33 percent share in 2003 and dropping to 17.8 percent in 2007, Dunne noted. “Volkswagen was smart when it formed its joint venture with a central government owned company,” Dunne said. “It’s like having a member of the Chinese cabinet as your partner.”
General Motors’ joint venture – Shanghai General Motors (SGM) – grew to a 9.8 percent share of the market by 2003, but its share has remained essentially flat at 9.7 percent. Honda’s share has grown from 5.6 percent in 2003 to 7.8 percent in 2007. Latecomer Toyota has expanded its share from 2.4 percent to 8.2 percent in four years, while Nissan has nudged up its share from 4 percent in 2003 to 5.3 percent.
“Everyone is in the game in China and for foreigners, it’s an away game,” Dunne said, using a sports analogy.
The Chinese government wants its auto companies not only to build domestic cars, but also export them.
“It’s 25 years on and they haven’t made progress,” Dunne continued. “Only in past two years have they decided to make their own products.”
One of the new requirements of the Chinese government on foreign OEMs is that their Chinese partners also can build the cars produced by their joint ventures. Furthermore, automakers like Toyota, General Motors, or Ford would not be able to stop the Chinese copy from being exported, Dunne noted.
The Chinese have held the Buick brand in high esteem since it was one of the few luxury foreign cars available before the Chinese communist revolution. GM capitalized on those fond feelings by offering Buick brand vehicles, but it diluted its high-end appeal by offering less-expensive Daewoo built vehicles to Chinese customers.
There is “no love loss” between the Japanese and Chinese – an outgrowth of the brutal Japanese occupation of China during World War II – Dunne noted (while Zhang was seen visibly nodding his head). However, Toyota, Honda, Nissan, and the other Japanese companies in China have kept a low profile but offering service and quality to Chinese customers.
Although the Geely Holding Group was the first Chinese car company to showcase one of its vehicles at the 2005 North American International Auto Show in Detroit, one of the automakers to watch out for is Chery.
A Chinese state-owned enterprise, it was founded in March 1997 as groundbreaking started for its factory in the city of Wuhu, in Anhui Province. Located in the Yangtze River Delta, the most developed area in China, Chery rolled out is first car on Dec. 18, 1999, Zhang said. Its 10,000th car was produced on June 16, 2001. It built its 500,000th car on March 28, 2006, and then its one-millionth car August 22, 2007.
By historical contrast, from 1908 to 1915, it took Ford Motor Company’s Highland Park (Michigan) Plant, its 25 assembly plants throughout the United States, Canada, and its British plant to produce 1 million cars.
Instead of relying solely on China’s relatively cheap manpower – even though its workforce is young, with an average age of 22 – Chery now has very modern plants, Zhang said. It has three car production plants, two engine plants, and one gearbox plant with the capacity to manufacture 650,000 cars a year, 400,000 engines a year, and 300,000 gearboxes annually.
Chery has one of five of the most advanced painting lines that was constructed by Germany’s Durr company, while the engine plant is equipped with highly advanced robots from Germany and Italy.
“We strive to have the best quality,” Zhang said. “We are running a clean, energy-efficient operation and maintain a hospital clean (engine factory).
“Chery will focus on the high-growth markets (for export) in the near term,” Zhang said, noting those markets includes Russia and Eastern Europe. Although he said it was “too early to tell at this moment” when Chery-brand vehicles might come to the U.S., he did say that Chrysler-badged vehicles made by Chery might come to North America far sooner.
Zhang is very familiar with the U.S. market. He lived in Michigan for 10 years – two years while earning his Ph.D. in mechanical engineering from the University of Michigan and eight years at DaimlerChrysler.
He went to U of M initially because “a friend had elected to attend there,” he said later during lunch and that’s when he became interest in the automotive industry. “I was a mechanical engineer and going to the university and it just seemed natural.”
Chinese companies like Chery are keen observers of how the Korean manufacturer Hyundai entered the U.S., Dunne noted.
“Hyundai made a big splash in the market in 1985 and a big build up and wasn’t able to sustain it with the quality problems,” Dunne said. “I think the Chinese are very good listeners and observers of history. They will not make the mistake the Hyundai did.”
For his part, Zhang added that the first Chinese company that comes to the U.S. should be defined as that can sustain itself in the marketplace.
The future for an automotive company can be a five to ten-year time frame. Following logic first created by GM, an automaker doesn’t need to be the first to come to market, but it does have to provide consumers what they perceive to be a better value.
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