Will Chinese Cars Be a Hit?

Despite recent media hype, Chinese auto makers will not be storming the gates of North America anytime soon.

But once the rush begins Chery Automobiles Co. Ltd. stands the best chance of succeeding among China's growing list of export-minded car manufacturers, automotive experts say at a panel discussion in Birmingham, MI, outside Detroit.

Although the relative newness of some of the up-and-coming Chinese auto makers makes picking a winner difficult, Michael Dunne, managing director-China for J.D. Power and Associates, says Chery is the horse to “bet on” and is “on a level all by itself in China.”

What remains unclear is whether Chery will enter the U.S. as the maker of Chrysler LLC's upcoming B-car. With or without Chrysler, Chery already is a strong contender.

While it is not partnered in one of China's major joint ventures, Chery placed No.4 in market share last year behind GM-Shanghai Automotive Co. Ltd. and expects to hold its position for 2007, with aims to triple sales to 1.4 million vehicles by 2012.

Although flush with success, Lin Zhang, general manager of Chery International, acknowledges setting up sales and distribution operations in the U.S. presents opportunity but also considerable risk.

“The U.S. is our biggest challenge,” he says. “No question, (it) is the most competitive and demanding market in the world.” In addition to meeting safety and emissions requirements, “customers have high expectations of quality. We need a strong dealer network.”

Zhang makes his remarks at a recent J.D. Power and Associates' China conference, marking his first public appearance in Detroit since his company finalized a partnership with Chrysler in July to build small cars.

“We're very glad to have signed a strategic opportunity with Chrysler,” he says.

Indeed, before setting up shop as a standalone company, Chery's first car for the U.S. likely could wear a Dodge badge, although Zhang says the vehicle will be built using one of Chery's existing platforms.

“We don't have a timetable,” he admits but tells reporters the car could be sold in the $10,000 range, depending on the vehicle and the strength of the dollar.

Whether that will be the Dodge Hornet small concept car remains undetermined. It is “apparently one of the things (Chrysler and Chery) are discussing,” he says, “but there are no definite plans.”

A source from Chrysler's product-development team tells Ward's Chrysler's North American B-car program presently is in a state of flux. “We don't have a B-car program,” he says. “We are simply trying to forge a B-car program. But we don't currently have one.”

The source confirms the first Chery product for Chrysler will be for Mexico and South America. “But that's not a B-car,” he says, noting it will be smaller. “The B-car we really want to do is the Hornet.”

Zhang says before Chery's expansion can occur in North America, as well as Western Europe, “we want to build our capabilities in powertrains, platforms, safety and emissions. Until we are ready, we won't come to the U.S.”

That's not to say China's seventh-largest vehicle maker and fourth-largest passenger-car producer lacks manufacturing experience, this year having become the first Chinese car company to produce its 1 millionth vehicle.

What sets Chery apart from other Chinese competitors anxious to compete in the West's big-league markets is its patience and focus on quality. “We have a broader view of the industry,” Zhang says. “We're always looking at the longer term.”

Zhang joined Chery as executive director for engineering planning in 2004, taking a number of automotive Chinese expatriates in the U.S. with him.

The soft-spoken executive is the polar opposite of the brash Malcolm Bricklin, who announced in 2005 plans to import Chinese cars into the U.S.

Chery was to build the cars, while Bricklin's Visionary Vehicles LLC would be responsible for their design and engine sourcing. Bricklin had grand sales ambitions, promising he would deliver upwards of 250,000 units in the first year of operation and 1 million units annually after five years.

But things quickly unraveled as Chinese government approval for the deal was slow to come, and the entry date was pushed back from 2007 to 2008-2009.

In 2006, Chery announced its partnership with the former DaimlerChrysler AG, and Bricklin confirmed he and Chery had parted ways. Since then, there's been a tangle of lawsuits involving Chery, Visionary and others.

The auto maker's problems in the U.S. do not end there.

Chery suffered a crisis of confidence in the U.S. last year when a video across the Internet showed one its sedans sustaining severe damage in a crash test. In addition, China's manufacturing reputation recently has taken a hit by recalls of defective and potentially dangerous toys and other Chinese-made products.

Plus, Chery's run-in with General Motors Corp. regarding intellectual property theft could create issues if it decides to enter the U.S. market using the Chery brand.

GM filed a lawsuit in December 2004, which it later dropped but retained the option to re-file if Chery violates certain conditions, claiming Chery's QQ vehicle mirrored the Daewoo Matiz that is built by GM's subsidiary in Korea and sold as the Chevrolet Spark in China and India.

Chery also might face challenges entering the U.S. if the World Trade Organization decides Chery's status as a state-owned company provides it with favorable advantages, such as free land and Chery QQ.