Chery Auto says China can combine quality, low price


By Fang Yan

SHANGHAI, Sept 21 (Reuters) - When Chery Automobile, China's only big carmaker without a foreign joint venture partner, signed a deal in July to supply small cars to Chrysler, it was the first formal recognition that a home-grown Chinese car was good enough for the U.S. market.

But Chery is no high-priced brand in its home country.

China's fourth-largest carmaker, and one of its fastest-growing, makes one of its cheapest models: the hot-selling QQ, which at a list price as low as 40,000 yuan ($5,330) costs less than a vehicle licence in Shanghai. Its most expensive model lists for about 200,000 yuan.

In a tour this week of Chery's sprawling plant in the eastern Chinese city of Wuhu, a five-hour drive from Shanghai, executives revealed their formula for combining quality and low cost: not scrimping on parts, equipment, and top talent.

In the assembly plant and paint shop for the compact A1, which Chrysler plans to roll out in U.S. showrooms in 2009 under its own badge, robots do most of the work.

The A1 was built with the help of Italian design house Bertone and is powered by a 1.3 litre engine developed with the aid of Austrian engineering firm AVL.

"We spent handsomely on equipment and ordered parts from the best suppliers such as Bosch [ROBG.UL], Delphi and Valeo ," said Zhou Biren, Chery's English-speaking vice president.

"But it was money well-spent as it will enable us to build quality cars at affordable prices."

He declined to disclose how much Chery had spent on equipment but another company executive said a single testing facility imported from Germany costs 300,000 euros ($419,400), 10 times as much as a domestically made version, and Chery runs 13 such facilities.


Chery has the backing of the local government in Anhui, a largely agricultural province which is eager to build up its auto industry.

Brisk demand for its models also helps to finance investments, executives said.

From January to July, it sold 197,923 vehicles, ranking it number four in China, the world's second-largest auto market after the United States. The top three are joint ventures of Volkswagen AG or General Motors Corp .

Most Chinese carmakers have, until recently, counted on locally made versions of foreign brands to drive sales.

Chery, however, has since day one pursued an independent path aiming to create a national brand, with the aid of imported facilities, outsourced designs, and veteran engineers and designers hired from Chrysler, Volkswagen, Ford Motor and others.

"Why make foreign brands? Why couldn't China have its own national brand which is just as good?" said Jin Yibo, vice president of Chery's sales arm who joined the company in 1998.

Chery, now exporting cars to more than 50 countries including Russia, the Middle East and South America, is among a small club of ambitious Chinese players, such as SAIC Motor Corp and Geely Automobile Holdings , hoping eventually to emulate the success of Toyota Motor .

It aims to generate 40 percent of its sales, estimated at 1 million cars, overseas by 2010, up sharply from 25 percent expected this year.

Zhou, also fluent in Japanese, said he hoped to ship Chery brand cars in mature markets someday, but said that the Chrysler deal was a good start.

"Even though the cars will be sold under the Chrysler brand, through Chrysler's network, everybody knows these cars are produced and designed by Chery. This can help promote our image." ($1=7.505 Yuan)



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