Wednesday, March 01, 2006

Chinese Autos Aimed At Mainstream Market

By Gordon Fairclough
The Wall Street Journal
Wednesday, March 1, 2006; Page D01

BEIJING -- Malcolm Bricklin, the man who brought Americans the Yugo, wants to sell U.S. consumers a new line of cars made in Wuhu, China. But this time, Bricklin says that instead of going after bargain-hunting buyers with cut-rate compacts, he will aim squarely at the middle of the market.

Working with Chery Automobile Co., a state-owned enterprise that is one of China's fastest-growing automakers, Bricklin plans to introduce to the United States made-in-China sedans and sport-utility vehicles priced at $19,000 and designed to steal customers away from cars such as Toyota Motor Corp.'s Camry and General Motors Corp.'s Buick LaCrosse.

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The 66-year-old entrepreneur, who got started in the auto business by importing Subarus from Japan in the 1960s, signed an agreement in 2004 to become Chery's exclusive North American distributor.

Under the deal, Bricklin had to raise $200 million to invest in Chery and assemble a network of U.S. dealers. He now has the money in hand, he said, and nearly 40 dealers have ponied up at least $2 million each in exchange for sales rights and stakes in Bricklin's company, Visionary Vehicles LLC. Bricklin said he expects to sign up 200 more by the end of May.

"China is coming," Bricklin said in an interview.

China recently reached a milestone, becoming a net exporter of vehicles for the first time. Should it succeed in exporting passenger cars in significant numbers, that could strain trade tensions between the United States and China and heighten the competitive pressures on struggling U.S. carmakers.

But getting a foothold in the United States won't be easy. There are high regulatory hurdles. And skeptics question whether U.S. car buyers will pay nearly $20,000 for a car from a relatively untested Chinese maker with no history of selling in the United States. It took Korean automakers such as Hyundai Motor Co. about a decade to gain a significant following among U.S. consumers.

Chery, for its part, is keeping quiet about its U.S. plans. A company official acknowledges that Chery is in talks with Bricklin. But Kan Lei, the Chery vice president in charge of preparations to enter the U.S. market, said: "We are not in a position to say anything yet."

Founded in 1997 in one of China's poorest provinces, Chery has risen to prominence on the Chinese automotive scene by producing small, cheap cars that have earned it a reputation as a copycat. Chery's best-selling QQ, a subcompact, looks almost exactly like GM's Chevrolet Spark.

GM's South Korean affiliate, which designed the Spark, sued Chery in 2004. The companies settled the case last year without disclosing the terms. GM and Chery declined to comment on the settlement. Bricklin said that, as part of the agreement, Chery agreed not to use the name Chery -- just one letter away from Chevy -- on cars sold in the United States.

Industry watchers, however, contend that Chery's knockoff days are over. The company has hired Italian design firms Pininfarina SpA and Bertone Group to help it launch a new line of vehicles. Some, including a racy hardtop convertible, are being developed especially for the U.S. market. Chery also has enlisted AVL List GmbH, of Austria, to help it make engines.

"Chery will be a formidable competitor. They have the ambition, they have the leadership and they have the money," said Michael Dunne, president of Automotive Resources Asia, an industry consultant.

Chery has big ambitions. Last year, the automaker sold nearly 190,000 cars, more than twice as many as in 2004. In 2005, Chery also exported 18,000 cars, mostly to the Middle East. The company says it aims to sell more than 300,000 vehicles overseas annually starting in 2008.

Bricklin is aiming to have Cherys on sale in the United States by late 2007 or 2008, depending on how quickly the company can improve quality.

Chery executives are more cautious about timing. Zhang Lin, a former DaimlerChrysler AG executive who now heads Chery's international operations, said he doesn't want to predict when his company's cars will hit the U.S. market. "We're still in the very preliminary stages," Zhang said.

At the moment, Zhang said, Chery is focused on Russia, where it will begin assembling cars this year, as well as the Middle East and Southeast Asia



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