DETROIT – Over the next three years,LLC will get 12 vehicles spanning three segments from its partnership with China-based Automobile Co. Ltd., says the CEO of Chrysler’s Asia operations.
But against a backdrop of frenzied news coverage about China’s growing auto industry, Phil Murtaugh recommends patience. Whileand are “making good progress” and no delays are foreseen, some of the early expectations for the partnership now appear “a bit simplistic and naive,” he tells Ward’s here during the North American International Auto Show.
Chery products are highly regarded in China, but they are “a bit further away from being ready for the U.S. market than Chery thought,” Murtaugh explains.
In addition, Chinese auto makers “are woefully unprepared to provide after-sales support in the U.S. They have no comprehension of what’s required in this area.”
Murtaugh is unsettled by the expectations of an anxious public.
“(The media is) always saying, ‘What’s going on? Why aren’t you doing anything?’” Murtaugh says. “Well, it’s a pretty big deal. Getting a little bit more into it, reality is setting in – both at Chery and Chrysler – (regarding) the scale of the task at hand. And it will take some time.”
The Chery agreement and the recently announced partnership withMotor Co. Ltd., are hallmarks of Chrysler’s newfound aglity since it went private under the ownership of Cerberus Capital Management LP.
“Maybe a more traditional approach would have been, ‘Let’s wait three years and try to develop (our own products),’” Chrysler CEO and Chairman Robert Nardelli tells journalists at the auto show. “Our view is, if we can get it and get into the market – now is better than later.
“If we can share to win, if we can partner on technology; if we can partner on platforms; we certainly are going to seize that opportunity, because it plays right into a bias for speed,” Nardelli says.
To speed things up at Chery, Chrysler President and Vice Chairman Tom LaSorda recently revealed the auto maker will, over the next 18 months, double its engineering and procurement contingents in China. And he says during an auto show interview that Chrysler’s product development, manufacturing and market strategies are well defined.
“We know exactly what we want, where we want it,” LaSorda says. “It’s going to turn out to be a great partnership.”
Clearly, however, the undertaking is daunting. Thedeal, which provides Chrysler with a version of the Nissan Versa B-car for sale in South America, represents “one product to solve one problem in one market,” Murtaugh says.
The Chery agreement “is a very, very complex contract,” he adds. “There’s going to be about 12 (vehicle) programs within this agreement, maybe more. In the next three years, there’s going to be 12 programs.”
The 12 programs encompass three vehicle segments, and each product is aimed at a specific market or region. “The very first program is on track,” Murtaugh says.
Chrysler is mum on details about the first Chery car it plans to sell. A well-placed source has told Ward’s it will be in the “sub-B” segment, though North America is expected to get a B-car – a growing market fueled by volatile gasoline prices, but one where Chrysler is absent.
Steve Landry, executive vice president-North American sales, says the first Chery-built car is destined for South and Central America, as well as Central and Eastern Europe. The first Chery car won’t arrive in the U.S. for two or three years, Landry tells Ward’s.
Entities such as Chinese America Cooperative Automotive Inc. (CHAMCO) and Changfeng (Group) Co. Ltd. claim they will bring product to the U.S. this year and next, respectively. But Murtaugh – whose career in China spans more than a decade, including stints withCorp. and Shanghai Automotive Industry Corp. – suggests success is further down the road.
“No Chinese manufacturer is going to be in the States until 2010-2012,” he says. “The products that are in China’s market today are unsalable in the U.S. They need to be improved in many areas.”
If Chinese auto makers export product to the U.S. before 2010, “they’re going to fail,” Murtaugh warns.
However, Chrysler’s Chery cars will make the grade, both he and Landry say.
By the 2010-2012 time frame, Chinese auto makers will “have learned enough about the U.S. market to understand the support requirements.”
Says Landry: “These vehicles will have the same quality (as) the Chrysler, Dodge and Jeep vehicles that we ship today. That has to happen because everyone’s going to be looking for the potential issues of it being a vehicle built in China, with whatever reputation that has.”
Chrysler has not said how it would market the Chery vehicles in the U.S. The auto maker unveiled a Dodge-brand concept B-car – the Hornet – at the 2006 Geneva motor show, but executives suggest there is no decision about how to badge the Chery car.
Landry notes Chrysler sells a-brand product in Mexico.
“So the question for us is, do we do the same thing here in the U.S. market?” he asks. “Do we entertain using our own brand name or a new brand name or the Chery brand name? Those are the three alternatives.”
A new brand, Landry admits, is last on the list.
“Starting a new brand is very, very expensive. Three’s enough, from our (current) standpoint.”
In his first interview with Ward’s since joining Chrysler fromlate last year, Murtaugh says he took his assignment because it seemed like “an interesting job.”
He also knew LaSorda from the latter’s days at GM and regards Mike Manley, executive vice president-international sales, as “brilliant.”
Murtaugh admits Chinese cars face an uphill battle in the American consumer’s consciousness. His approach: “Make the cars bullet-proof and sell slow.”
Word of mouth will carry the day, he says.
But it’s a mistake to underestimate the Chinese market and the value it places on quality. While one end features “really cheap” products to satisfy entry-level markets, there also is a healthy premium-vehicle market peopled by consumers who have greater expectations than Americans, Murtaugh says.
That’s because they’ve been told vehicles from overseas-based auto makers feature “world-class” quality.
“They demand interiors that, in the U.S., you would only expect on the highest luxury cars,” Murtaugh says. “In China, they’re on lower-medium cars. The smallest cars in China have backup avoidance detectors. And the customers expect that car will never fail. It’s very demanding.”