[Real_I_Hate_China]

Chery's first big international break; Chrysler to outsource B-segment car production

http://www.autoweek.com/apps/pbcs.dll/article?AID=/20060504/FREE/60504005/1041/TOC01ARCHIVE

Ha Ha Ha, it won't be too long before Chrysler sees Chery badged versions of its B-segment car competing with its brand version selling for 20% less!!!

Just consult GM before doing any business with Chery.....

 

[Real_I_Hate_China]

An update on Chrysler Hornet.

There are three candiates for Hornet production in China. The leading contender is VW. Chrysler won't name the other two.

Why VW? Probably for the sole reason of IP rights trustability. Give the drawings to VW and Chrysler can be assured VW won't backstab them.

Give the drawings to Chery or some other hungry Chinese company and 20% cheaper clones start hitting the street, with Hornet's design IP recycled in other cars.

 

[Real_I_Hate_China]

Chery trying to sell Chrysler what it does not have; a US-regulation compliant B-segment hatchback with a J.D. Power & Associates's defect rating of 150 or less.

 

[Real_I_Hate_China]

Chery is just selling them the ability to build a vehicle, of Chrysler's design

DCX doesn't have a B-segment chassis of its own(other than cost-prohibitive Mercedes A-class chassis), it requires the supplier to use its own.

at a competitive rate and quality rating.

Chery has a J.D. Power and Associate's initial quality rating in the 400s, a junk car by US standard.

If the deal gets complete, Is Chery going to sell the car to Chrysler for about $9000 then Chrysler will put a Dodge badge on the car and sell it for around $12000?

Chery's ex-factory price $7,000
China Inland transportation : $500
Sea shipping + insurance : $1,200
US import duty : $218
US inland transportation : $700
Chrysler Margin : $1,000
Dealer Margin : $1,000
--------------------------------
Total Sticker Price : $11,618

his is the case of a manufacturer designing a car

DCX isn't engineering Hornet. The supplier must come up with its own chassis. The deal with VW fell apart because VW Polo underpinning Hornet was considered too expensive.

 

[Real_I_Hate_China]

No...it requires suppliers (assembler and parts suppliers) along with DCX to develop a NEW platform or modify an existing one.

However Chery comes up with a chassis is none of DCX's concern as long as it is legal; it is not coming out of DCX's pocket. Gotta wonder where Chery will find $500 million necessary to develop a US regulation compliant chassis.

Who's survey?

J.D. Power and Associates

From what country?

Chinese domestic market, 2005.

In any case, that's based on Chery developed products and not based on DCX developed vehicles.

Chery has to develop Hornet, not DCX.

Nice numbers...but they're all guesses. How can Hyundai and Daewoo build products that can be sold PROFITABLY in the US for well under $10,000?

They build cars for B-segment cars for $6,000.

The Hornet will be sold in the US for considerably less than your $11,618 guess.

DCX has no reason to underprice Hornet, so it will be within the Yaris and Versa price range, meaning $11,000~13,000. Chery has to build one at $7,000 to hit an MSRP of $11,500 in the US>

Volkswagen's cost of building the Hornet was a problem. Germany, the Czech Republic, and Brazil have cost structures that make a B-segment vehicle cost prohibitive for sale in the US.

VW version would have been built in Mexico.

 

[Real_I_Hate_China]

Really?

Yup.

You think it's entirely up to Chery?

Or whoever actually lands the contract.

Name ANY company who's outsourced EVERYTHING about the development of a vehicle.

DCX is not trying to develop anything; all they are trying to do is to take a delivery of complete vehicle and sell them for a profit in the US market. This has been done with Japanese and Korean cars in the old days. Similar to Disney-brand DVD players; Disney doesn't engineer and manufacture Micky Mouse DVD players; they simply buy complete DVD players from Chinese and sell them for a profit.

You really think that DaimlerChrysler would have no input and would pay nothing to develop a new vehicle? Really?

DCX will ask Chery to style the vehicle similar to Hornet concept, but that's about it.

The SELL them for about that. Which means they could easily produce and deliver the Hornet to the US for DaimlerChrysler to PROFITABLY sell it for $10,000.

None of Cherys are US regulation compliant. Meeting US regulations could easily jack up the cost by 50% or more. I mean, Chery must build Hornet with imported galvanized high-strength steel sheets, not cheapo local steel, 6 airbags, ABS, California Emission, etc. That's on top of $500 million chassis development cost that Chery must pay.

 

[Real_I_Hate_China]

this is finding a low-cost manufacturer for a DaimlerChrysler product.

So you misunderstood the terms of deal.

It's not a Mitsubishi Precis or Pontiac LeMans or Dodge Colt.

It is.

Oddly enough, Hyundai and Kia and Chevrolet sell vehicles for less money than $12,000 in the US.

Hyundai and GM Daewoo enjoy the economy of scale that Chery doesn't. Hyundai(Accent & Rio) and GM Daewoo(AVeo) are selling at least 300,000 copies of their B-segment vehicles a year worldwide(US, China, India, Europe, Korea, etc).

And Chery's not paying $500 million out of the pocket...

They are.

the vehicle will be financed by DaimlerChrysler.

Nope.DCX already rejected preexisting Polo chassis over cost, even though they didn't have to pay for its development cost. Why do you think DCX is suddenly willing to pay $500 million for a chassis development when they didn't have to with the VW Polo-derivative deal? Why do you think DCX was outsourcing Hornet in the first place anyway? So that they don't have to pay for R&D and production line!

Why would Chery (or ANYONE) pay half a billion dollars to develop a car for someone else

Because it would be a Chery owned, not DCX, vehicle.

just to get paid $6,000 per copy?

Chery executives being overly optimistic and desperate for a deal.

If Chery made $1,000 per vehicle, that would mean Dodge would need to sell 500,000 just for Chery to break even...and that's not going to happen in the lifespan of these vehicle.

Chery gets to sell the vehicle under its own brand in China and elsewhere.

Chery's not paying for the development of this car.

DCX might be lucky to sell 300K Hornets in the North American market over 5 years; Paying $500 million to develop a car with a revenue potential of only $3.5 billion doesn't make any sense financially. Hence it is DCX's decision to sell somebody else's car(paid for by somebody else) under its own brand, that's what Hornet deal is all about.

 

[Real_I_Hate_China]

Actually, I was under the impression that the Mk4 Golf/Jetta platform was then going to be used, because the tooling's all paid for.

And risk a lawsuit from VW? Entering the US with a pirated car?

But, maybe the Hornet will end up on the A15 platform, hopefully?

A15 cannot be modified to meet US crash test standard, you basically need to redesign the whole thing from scratch, with thicker frame and body panels.

 

[Real_I_Hate_China]

Chery's Hornet : A disaster in the making?

Here is the scope of deal.

- The car is based on an existing Chery; most likely the S12.
- Price range is $8,000 ~10,000
- Chery saw the biggest quality decline in 2006.

The question is, can S12 even pass the US crash and emissions regulations? With Chery's prices so high and a Toyota Yaris only $1,000 more, The Chery Hornet is a probable disaster in the making.

Even worse, S12 is a Matiz derivative based on its posted dimension. GM lawyers will have a field day on its arrival.

 

[Real_I_Hate_China]

Yes. Hence a poor performance in crash test is expected.

 

[Real_I_Hate_China]

NO that was not based onto the S12 as it was produced before any talks of any Chery/Chrysler small car deal.

It was clear from the beginning that Hornet would be built on builder's own chassis from the beginning. This is why the initial deal with VW fell apart because the Polo chassis cost too much.

Chrysler confirmed once again that the Hornet would be based on an existing Chery model; that leaves just two possible choices, QQ6 or S12. DCX is not providing any engineering; it is 100% Chery's responsibility to come up with a S12 variant wearing Hornet styling, to be available in 2008.

Now, are you still confident that Chery Hornet would still be able to compete with Toyota Yaris?

 

[Real_I_Hate_China]

http://www.columbian.com/news/APStories/AP12302006news88194.cfm

The cars, which already are being designed, would be based on an existing model but will be modified jointly by Chrysler and Chery engineers, Chrysler spokesman Jason Vines said Friday.

http://www.columbian.com/news/APStories/AP12302006news88194.cfm

Chrysler could use either the Polo or Jetta architecture to build the ~$10,000 Dodge Hornet. However, VW was unable to give the company an attractive enough price, according to the report.

The whole Hornet was nothing but a distribution deal. The supplier engineers and delivers the car, while Chrysler sells them under its own badge. No financial risk to Chrysler and Chery must bear all cost burdens.

 

[Real_I_Hate_China]

i don't think chery is in this for love or experience.

But that's exactly the case here. Do a quick calculation and numbers don't add up. Chery is not making any money off this deal, or could even be losing money.

According to Chrysler, the MSRP starts at $8,000.

To reach that MSRP, Chery must ship out Hornet at $5,500 from Wuhu, or 44,000 Yuan. This is basically the ex-factory price of a QQ, but built with expensive imported high-strength galvanized steel(You cannot source high-strength galvanized steel from Chinese steel suppliers), a California emisssions compliant exhaust system, and dual airbags. Now you can see Chery could possibly be losing money from the Hornet deal.

 

[Real_I_Hate_China]

i see your point. but if you say that the ex-factory price of the QQ is $5,500

Base QQ retails for $3,600 in China, meaning the ex-factory price is lower, but not by much since Chery's average margin on QQ is $50 per car. You bet Chery is losing money on the $3,600 base model.

then shouldn't the actual cost to produce be somewhere around $4,000?

$5,500 is the maximum Chery could charge for base Hornet since an overhead of $500 China inland transport(Wuhu is a fucked up place to export cars since it is not located beachside like all export oriented Japanese and Korean auto factories), $1,000 seafreight, $175 import duty, warranty, and the US dealer margin of $500 per car. Note that I am not counting in Chrysler's profit since Chrysler would lure possible customers with the $8,000 MSRP but sell them $10,000+ loaded versions instead. The US inland freight is extra.

Think about it, how are you supposed to build a US regulation compliant car for $5,500 anywhere on earth, even in China? Toyota and Hyundai's next generation low-cost cars aimed at developing markets are priced at $8,000, and these models aren't even US regulation compliant.

W/ this figure, chery wouldn't be making very much, but so long as the product gains acceptance, the eventual msrp could be raised slowly w/ face lifts, more options, etc. to raise the margins.

Then there is no point of Hornet since it would approach the price of Japanese and Korean subcompacts in the US.

since we're talking costs here, do you have an idea as to what a chinese manufacturer would consider as a fair net profit margin for every vehicle they produce?

5% is a fair margin to auto-manufacturers, foreigners and Chinese alike. But it has become increasingly difficult to turn a profit in China because of ongoing price wars. As one observer notes, China is the only place on earth where the car price goes down each model year instead of going up.

 

[Real_I_Hate_China]

As of now it is perhaps too early to speculate on this matter. What we do know is that DaimlerChrysler has the ability to improve Chery's building quality.

Do they? Chrysler always depended on Mitsubishi to supply them with chassis and powertrain engineering, and Chrysler/Dodge cars aren't known for build quality. DCX doesn't have much to offer in terms of engineering and quality assurance, nor are they even willing to offer them because of the fear of the boomerang effect.

It doesn't matter if the price comes close to Japanese and Korean subcompacts because Chrysler needs a small car to it's line-up.

Since S12 is a much less of a car than Japanese and Korean rivals, similar pricing only means no sales.

If it works, then other US car companies might follow this same method.

GM and Ford have better alternatives.

 

[Real_I_Hate_China]

I was mainly referring to DaimlerChrysler's German side. I believe that DC will send a team of German engineers to China to ensure that quality will be good enough for western markets

Why would Daimler do something it won't do for Chrysler?(Mercedes and Chrysler will no longer share chassis from now on, a decision many see as a prelude to an eventual divorce?) You do know that Daimler's union which sits in the board of director is dead opposed to any Chinese imports, dont' you?

If Chery's small car has good quality

Chery's quality went down big time in 2006, not up.

and has a price somewhere between $10000-$12000 it will certainly succeed (if they keep Hornet's appearance).

That was before the US B-segment car got crowded with Yaris, Fit, and Versa. Hell, even Hyundai Accent and Kia Rio twins, both of which get The Consumer Report's Best Buy recommendation took a sales hit.

GM has sourced it's small car (Aveo, which isn't a huge hit)

Actually Aveo is the US B-segment sales leader. I don't understand who buys this but Chevrolet dealers do sell lots of Aveos.

Is it more logical that the Chrysler is based on the M11 and M12 (A3)?
Why the QQ 6 or the S 12?

Because QQ6 and S12 are in B-segment, while A3 is in C-segment.

Chinese taxes are about 25- 30 % (depending on the province and city), so this car can leave the factory for 2300~2400 yuan.

0 ~ 1.5 liter : 3%
2 liter+ : 20%

 

[Real_I_Hate_China]

They will be based on an existing Chery platform, with sheet metal designed by Chrysler.

So does this convince doubters that Chrysler just wants to be a distributor?

The next-generation Fiesta, which is being engineered in Hiroshima by Japanese affiliate Mazda, will be produced around the world, including factories in India and China, and it will be no surprise to industry watchers in Detroit if a China- or India-built Fiesta finds its way to the States by 2010.

US models will be sourced from Mexico. That's the essence of Ford's Way Forward(To Mexico) restructuring plan.

General Motors and its Chinese partner Shanghai Auto are already building a version of the Korea-engineered Chevy Aveo. Sooner or later, GM could decide that it's much cheaper to import the car from China than Korea.

It costs more to assemble an Aveo in China than in Korea due to heavy imported Korean content that cannot be sourced in China and long logistic lines. Not to mention that GM saves a bundle on shipping($500 per car).

Once the flood of small cars with American badges begins, the Detroit-based automakers will begin evaluating how to re-source larger vehicles from China. It's a sure bet that topic will be high on the agenda as the U.S. manufacturers enter contract talks later this year with the United Auto Workers.

Take Honda and Hyundai's word for it. It costs more to build a car in China than in Japan or Korea. Foreign plants in China are for carving out a piece of the fastest growing automarket.

 

[Real_I_Hate_China]

China is cheaper than Mexico.

Depending on what you produce.

For now, S Korea and Japan may have the efficiency to be cheaper than China, but in the long run (sooner than later), there's NO WAY S Korea and Japan can compete with China.

Toyota pays $100K/year salary to its workers yet its plants have no trouble rolling out $11,000 MSRP cars in the US market. When you reach 150 cars/worker efficiency, wage matters little.

As more and more auto parts are being made in China

The problem is that GM's A, B and C segment cars are engineered in Korea using Korean parts. As long as GM's China-assembled cars are engineered in Korea, it will always cost more to assemble the same car in China than in Korea. The only way GM's China-assembled cars can be cost competitive is if the Chinese parts industry matures and cars are engineered in China using Chinese parts, but this cannot happen as long as GM is denied of 100% ownership in its Chinese operations.

Take steel for example. US and EU market models must be built with high-strength galvanized steel plates, but you can't source such plate in China. Why? Because Chinese steel companies can't produce them and the communist government denies foreign steel companies access into Chinese market. When something as basic as steel sheets must be imported, how cost effective is that manufacturing operation going to be?

the cost of final assembly falls too.

You don't understand how auto manufacturing business works.

Remember that DC is doing better than it's competitors GM and Ford.

But Chrysler cars aren't better than GM and Ford cars.

I wouldn't call it "big time" if you are referring to Chery's recall of 1875 Tiggo SUV's.

http://www.automotiveworld.com/AEM/content.asp?contentid=56214

 

[Real_I_Hate_China]

the LeMans it made for GM in the 80s.

LeMans was engineered by Opel in Germany.
Chery Hornet is engineered by Chery in China.

 

[Real_I_Hate_China]

Terms of Chrysler-Chery deal disclosed. A 25-year enslavement contract

The 25-year accord lets Chrysler pick any actual or planned model from Chery's product lineup in the small to compact car segments to sell as a Dodge, Zetsche said.

It also lets Chrysler give Chery blueprints for its cars - for instance the Hornet small car - to be developed and produced in China for the next 25 years, he said.

"This is an exclusive right for the markets of North America and the EU25," he said.

Cars arising from the accord can be sold under the Dodge brand or jointly distributed under a different brand.

The accord also means Chery cannot find another carmaker partner to sell its products from those segments in North America or Europe, he said.

"This is a very exclusive agreement which gives us access to a very low-cost product base with basically no investment on our side and according to the calculations we have made ... with very nice profits in segments where hardly anyone else makes profits," he said.

Zetsche played down prospects that recent turmoil on financial markets could crimp car sales.

"So far I would see it as a necessary and welcome adjustment of a very bullish market which by nature presented a higher risk of a major setback, so an earlier setback is welcome," he said.

Wow, Chery is banned from a direct distribution of its cars in the US and EU for the next 25 years, since Chery cars could only be distributed by Dodge or a joint-brand.