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2 China's auto makers hunt for
US key By Benjamin Shobert
This year's North American International
Auto Show in Detroit unveiled the compulsory range
of concept cars. These included the outlandish
Ford R3Flex and its webbed seating (ensuring that
you will now be certain to see exactly where your
lost change and atrophied french fries have gone)
to the more probable, and hence soon to be found
on a highway near you, Hyundai HCD9 - an
attractive marriage between sports car and
sport-utility vehicle (SUV).
Hidden down
in a basement exhibit hall a reasonable distance
from the annual hoopla this event is best known
for was the single
Chinese contribution to the
exhibition - Hunan Changfeng Motor Co Ltd.
Changfeng's foray into the North American market
is only the most recent of a series of attempts by
various Chinese automotive companies to find a
successful entry strategy for the North American
market.
At the base of this struggle is a
question that has not yet been answered, and
consequently has led to much wasted effort on the
part of Chinese companies trying to come into the
US; namely, what should be driving Chinese
automotive makers into North America?
It
remains unclear which intentions best suit the
Chinese automotive sector's objectives. Should
auto makers pursue North America for strategic
partners who can provide new manufacturing or
vehicle technology that can be used within the
domestic Chinese market? Would their best efforts
be spent in identifying financial partners who
want equity stakes in the lucrative automobile
market within China's own borders? Is now the time
to try to export products into North America using
a competitive advantage unique to China? No doubt,
each company's motives are disparate and some
combination of these respective questions and
answers.
During the past several years,
the annual Detroit Auto Show has usually been good
for a series of articles written in hushed tones
covering the looming threat of the Chinese
automobile manufacturers. However, thus far the
results of Chinese companies coming to Detroit for
this exhibition have been uneven at best. Entirely
gone from this year's exhibition was last year's
Chinese foray into the expo - Geely Automotive.
Curiously, the week before the Detroit
show, China's Chery Automobile and DaimlerChrysler
announced a letter of intent, with Chery filling
the role as manufacturer and Chrysler that of
sales and distribution into North America and
portions of Europe. Many recognized in this
arrangement the fact that Chrysler could have gone
its own way in building a low-priced vehicle for
export to the US, but wished to send a warning to
its union that it has options available for
lowering its labor expenses.
The Chery
announcement is one of the first meaningful
developments to suggest that the Chinese
automobile sector is moving out of infancy. Until
this announcement, the experience of Chinese
automotive companies working to penetrate North
America had been uneven at best. These fits and
starts have much to say about how Chinese
companies - in any sector - must evolve to be
successful.
Chinese automobile companies
are marked by some of the most sophisticated and
modern capital-asset infrastructures, in many
cases on par with some of their larger Japanese,
South Korean and US competitors. However, most
Chinese companies have not yet internalized the
critically important lessons revolving around
product design, development and marketing. The
somewhat apocryphal stories of how the South
Korean automotive industry evolved, first by
copying down to the smallest of details what
Japanese and North American manufacturers were
already doing, is likely the stage Chinese
companies are now evolving through.
Prior
to the Chery-Chrysler engagement, Chery had
ostensibly been the partner of Visionary Vehicles,
led by auto entrepreneur Malcolm Bricklin. Well
known for his salesmanship, Bricklin has remained
one of the automotive industry's more enjoyable
personalities, no small feat when considering this
industry gave us the somewhat pejorative label of
calling someone a "used-car salesman".
Best remembered in North America for being
the man responsible for bringing the Yugo to the
US, most recently Bricklin has focused on building
a new automobile company in partnership with
China's Chery. Only one year ago, at the same
Detroit show, the news coverage on Chinese autos
revolved around Geely, as well as Chery's
partnership with Visionary Vehicles.
Bricklin's initial efforts, exhaustively
covered in the US in no small part because he is
always a good story, were newsworthy in a larger
sense because his partnership with Chery also
promised to bring into narrower focus the
competitive threat represented by China's auto
manufacturers. The already weakened US automotive
sector, beset with health-care and other
contractual obligations to its union membership,
stagnant product lines, and inflationary oil
prices mitigating the success they had been
enjoying with fuel-hungry SUVs, all suggested a
tipping point that promised a unique timing
opportunity for Chinese companies to come into
North America.
To his credit, Bricklin
realized the potential of the Chinese
manufacturing sector and the inability of many
North American automotive original-equipment
manufacturers (OEMs) to respond to this threat.
Initially, the business strategy Bricklin and
Chery pronounced to the market was to bring a line
of five vehicles, ranging from an entry-priced
model to an SUV, into the US. Big money,
predominantly that of George Soros, came to the
table with US$200 million to invest in the
Chery-Visionary Vehicles partnership.
Where exactly things went awry in this
plan remains unknown, but this year's Detroit show
came on the heels of Bricklin and Chery announcing
they had gone their separate ways and Chery making
public its partnership with Chrysler. Bricklin's
explanations have ranged from Chery finding bigger
players in the market to work with to safety
problems with the designs from Chery; the former
seems more likely, as the latter would seem to
have prevented Chrysler from partnering with Chery
given its stated purpose of exporting the Chery
product into North America.
As with
Bricklin, the attention paid to North American
upstarts such as Changfeng, Chery and Geely has
more to do with the strategic development they
represent than with their actual product offering.
The loose calculus that has evolved on the issue
of China's automotive sector finding its way to
the US goes something like this: Japan was a
no-name, off-brand automobile producer in the
1970s, as is China today. Japan gradually was
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