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Can China Gear Up to Sell Its Cars to U.S. Consumers? Quality Is Key

4004 Views 1 Reply 2 Participants Last post by  mgrovernut
First it was textiles and consumer electronics. Next may be cars. China is once again looking to target a key consumer market in the U.S. Yet while low wages and government support could ultimately make China a powerhouse in the global automotive industry, Wharton faculty and industry analysts say it will take some time to reach that goal.

China needs at least another decade, according to these analysts, to overcome a long list of obstacles, including poor quality, high costs, weak design and a lack of distribution networks, before Chinese companies can compete with Japanese and Korean carmakers. "Whether they will be able to get their tentacles out there and do what the Koreans are doing is the question. There's no reason to believe they won't; the question is when," says Wharton management professor Marshall Meyer.

So far, Chinese exports are only trickling out to a few spots in Europe, Southeast Asia and the Middle East, but the chairman of DaimlerChrysler has confirmed that the company is in negotiations with companies in China and elsewhere to manufacture DaimlerChrysler models abroad for export to North America. And entrepreneur Malcolm Bricklin has said he will import cars made in China by Chery Automotive Co. to the U.S. in 2008 or 2009, although that timetable has already been pushed back twice.

China's first problem in becoming a major exporter is quality. Last year, the European New Car Assessment Program, which monitors auto safety for governments on the continent, gave its lowest score ever -- zero -- to a Chinese SUV.

"I don't really see that the U.S. will emerge as a significant market for Chinese exports in the next five to 10 years. There will be some low-end Chinese imported cars, but these products have to overcome stringent regulatory standards, appeal to a demanding U.S. customer base and develop viable distribution channels," says John Moavenzadeh, executive director of the International Motor Vehicle Program (IMVP), an industry research consortium based at Wharton and MIT. "On the other hand, I don't see any reason why we shouldn't expect Chinese imports over the long term. We have witnessed a clear pattern of increased imports followed by increased U.S. production capacity -- the rise of the transplants -- for Japanese and Korean manufacturers."
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Chinese and Asian car makers seem obsessed with cracking the US market so much so that the boss of Proton recently said that they had to make cars to appeal to the US market first.

But to my way of thinking this is just plain daft! The best thing to do is to target the worlds most competitive market. If you can sell cars in the most competitive market then your products will sell anywere. In my view this market is found in the UK and Europe. Europe has a long history of exporting cars that sell in Europe to the US. These cars are pretty much identical to the ones sold in Europe. But when US car makers attempt to sell cars in Europe they generally set up a seperate European operation because their US cars struggle to sell in Europe.

A great example is the new Jeep Cherokee. The Cherokee used to sell quite well in Europe when there wasn't much competion. But now that BMW, Volvo, VW, etc have joined the market Jeep sales have plumeted. Why? Well the Cherokee has a big ugly Chrome grill and the interior is cheap and tacky. Apparantly this is ok in the USA, but it's too down market for Europe.

In Europe we pay more for cars so we expect more! Competion is fierce. So if you design cars for the US then they will struggle in Europe. But if you design cars for Europe (and Japan) then they will sell in the US.

When will car Asian and Chinese car makers realise this?
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