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http://www.forbesautos.com/news/headlines/2007/april/ap041707-chinese-automakers.html

Car News and Reviews Chinese Automakers Gear up for Overseas Push


by Elaine Kurtenbach
Associated PressPublished on 04/17/2007
Passengers line up for taxis in front of a billboard advertisement for the Roewe 750, made by Chinese automaker SAIC Motor Corp., at the airport in Beijing.SHANGHAI, China — With models like the Hover and Roewe, Chinese-brand cars aren't household names in the U.S. and other big markets — not yet, at least.

But Chinese upstart automakers with equally obscure names such as Chery, Geely and SAIC are challenging industry leaders like General Motors, Volkswagen and Toyota in the fast-growing China market. And they're making inroads throughout the developing world with an eye toward eventually breaking into big Western markets.

China's homegrown automakers vie for attention with global giants like GM at the April 22-28 Shanghai Auto Show, a biennial event that will showcase China's phenomenal rise to become the world's No. 2 vehicle market.

The tenfold jump in China passenger car sales in the past decade has proved a big boost to General Motors Corp., which has become the market leader in China even as it loses market share at home. GM's sales in China last year rose 32 percent to 876,747 vehicles, while Ford Motor Co.'s jumped 87 percent to 166,722 units.

''Detroit is so cold, but here it's so, so hot,'' says Yale Zhang, a Shanghai-based auto analyst with CSM Worldwide.

Demand from newly affluent drivers in China lifted passenger car sales by 37 percent last year to 3.8 million units. All told, China's vehicle market — including trucks and buses — grew to 7.2 million last year, putting it second behind the U.S., with 16.5 million autos sold, but ahead of Japan, with 5.7 million.

Last year's top-selling model was the Jetta, made by FAW-Volkswagen, one of Volkswagen AG's joint ventures. Even Toyota, a relative latecomer to China, is gaining ground, with a 66 percent jump in first-quarter sales.

China has required foreign automakers to partner with local companies, and the boom has fattened profits for nearly all, says Zhang: ''They have money and they have room to maneuver. It's easier now.''

Domestic manufacturers are also getting a lift. Sales of small cars have surged after the government phased out urban restrictions last year on sales and use of minicars like Chery's popular QQ and rival Changan Automobile Group's CV6, a similarly egg-shaped minicar with a 1.3-liter engine.

Visitors look at a Chinese-made Dongfeng car at the 2006 Beijing Auto Show.Chery, Changan and others are also ramping up exports, especially to developing countries where low prices count most.

China's automakers exported about 325,000 vehicles last year, about 80 percent of them low-priced trucks and buses bound for markets in Asia, Africa, the Middle East and Latin America.

Chery, based in Wuhu, a city in eastern China's Anhui province, has led the export push for passenger cars, selling 50,000 units overseas last year.

The company assembles vehicles in facilities run with local partners in Iran, Malaysia, Russia, Ukraine, Brazil and Egypt and recently announced it has teamed up with Bognor SA to make bulletproof sedans in the Uruguayan capital of Montevideo.

But like many other Chinese automakers, Chery has its sights set on bigger targets.

At the Shanghai show, it will show an updated version of the QQ, dubbed the ''Chery A1,'' made in a new partnership with DaimlerChrysler AG. The Chinese side says it expects the alliance to eventually build compact cars for export to North America and Europe.

Little-known overseas, SUV maker Hunan Changfeng Motors Co. put on a display at the North American International Auto Show in Detroit in January, saying it hopes to begin exports to the U.S. within two years.

Rival Great Wall has gained a quirky reputation for its Hover model after shipping 500 of the SUVs to Italy last summer.

Executives at GM, Toyota Motor Corp. and most other big foreign car companies say China may eventually serve as an export base, but for now their big challenge is meeting local demand.

So far, despite limited exports to Australia and Europe, most of the Chinese automakers' grand plans for selling to Western markets have not materialized.

Chery's earlier plans to sell vehicles in the U.S. with American entrepreneur Malcolm Bricklin fell through.

A visitor takes photos of the Roewe 750 at the 2006 Beijing Auto Show.Nanjing Automobile Co. recently launched production of MG model sports car after buying bankrupt British automaker MG Rover in 2005, seeking a foothold in Europe. But its plans to build an auto plant in Ardmore, Okla., appear to have foundered amid a cash crunch.
''We won't necessarily be building it,'' company president Yu Jianwei said in a recent interview with National Public Radio.

And even in developing markets, it hasn't been all smooth sailing. Geely Group Ltd., China's largest privately owned automaker, saw its plans for auto assembly plants in Malaysia rebuffed last year.

China's domestic automakers are just not ready to meet safety and environmental standards in the U.S. and Europe, let alone to finance the service and sales networks they'd need to break into those already overcrowded markets, analysts say.''It's still too early to seriously consider China as a competitive rival to Japan and the U.S. in the auto sector,'' says Zhang Xin, an industry analyst at Guotai Jun'an Securities' Beijing office. ''They lack the capability to reach those ambitions,'' he said.

Chinese domestic automakers still lack the scale and efficiency needed to gain a real competitive edge, says John Bonnell, an analyst with automotive research firm J.D. Power and Associates. He does believe that some have the government backing and resources to eventually succeed, such as GM- and VW-partner Shanghai Automotive Industry Corp., or SAIC, maker of the Rover-inspired Roewe.

''There are lots of ambitions across the board,'' he says. ''But one-by-one you have to look and say, 'Where's the competitive advantage?'''

One example of their relative readiness was evident at the Detroit show, where the electronics in many of the made-in-China cars on display consisted of pictures of DVD players, navigation systems and stereos — taped to the dashboards.
 

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Nonetheless there's lots of grooming going on....among Chinese manufacturers....
to prepare for the export market, especially the U.S.. The will to get in is there, and a way will be discovered within a matter of time. My guess is that it'll be sooner rather than later.

And what will be the first medium?
Chamco, Brickland, Shelburg, Harmer, Nuttle, HSO Trading, AmAsia International, Global Holdings, Rapton, Tiger Truck's Ward, deng deng.....
 

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I beg to differ, Dragin. From the negotiations we held with Changan for assembly in Ukraine, describing Changan as retarded would proabably an under-statement. Apart from these silly, non-sensical, attitudes which can be encountered across the board with almost any Chinese manufacturer and the basic discussions-in-bad-faith, the logistical, technological and financial barriers are too numerous to even mention here. Basically, out of the chaotic market today, 2-3 manufacturers will emerge finally in another 10-15 years as major players which will be able to truly compete in the international arena with the "big boys". Those others, which will survive the fierce competition lying ahead in the next decade, will mostly continue selling in the Chinese country side at best.
 

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Shawroom my first sentence was just a play on words, as the person who originally started the thread entitled it,
"Groomy outlook for Chinese auto exports to developed markets"
Looks like the forum moderator's editing spared him redface....

But I think you are right. While a few makers have invested in hiring the talent that it's going to take to succeed abroad, many are just country bumpkins going to the big city with high hopes of making it. They will learn the hard way. Fortunately just last year the State Development and Reform Commission took some action to minimize the damage, by screening out at the most unqualified exporters through licensing.

You are also right about an industry shake out... consolidation is sure to accelerate soon.

Thanks for the heads up about Chang'an.
 

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Discussion Starter · #5 ·
Shawoom said:
I beg to differ, Dragin. From the negotiations we held with Changan for assembly in Ukraine, describing Changan as retarded would proabably an under-statement. Apart from these silly, non-sensical, attitudes which can be encountered across the board with almost any Chinese manufacturer and the basic discussions-in-bad-faith, the logistical, technological and financial barriers are too numerous to even mention here. Basically, out of the chaotic market today, 2-3 manufacturers will emerge finally in another 10-15 years as major players which will be able to truly compete in the international arena with the "big boys". Those others, which will survive the fierce competition lying ahead in the next decade, will mostly continue selling in the Chinese country side at best.
That's what doing business with Chinese is like. Malcolm Bricklin found it out the hard way.
 

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there are over 100 car maker in China now. most of them will not survive for long even in their own market, let along in US market.

Chanan is a bad example, these goverment owner company nerver really experienced free competition, owner its existence to goverment subsidy and market protection.
 

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Thanks for that observation Cover. But where does that put Geely, Great Wall, BYD and other private enterprises. Can they survive without the government subsidies and protection that Chang'an, Brilliance and Chery enjoy?
 

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dragin said:
Thanks for that observation Cover. But where does that put Geely, Great Wall, BYD and other private enterprises. Can they survive without the government subsidies and protection that Chang'an, Brilliance and Chery enjoy?
the issue is that goverment has been protecting and subsiding them for, anywhere from 20 to 30 years, they never achieved anything,and they never will.

the only goverment financed company that may survive is Chery, because, as a matter of fact, Chery has been descriminated against by its owner goverment through most of its 10 year existence and it did a wonderful job.

as for geely, great wall, byd etc, they will survive fine. like Chery, they has been beaten up by their own goverment(things has changed for the better in the last couple of years), still they survive. the market segment they are in(subcompact) are the market that ignored by global player, so the importing tax barrier does not mean much for this segment.

let's face it, most goverment ownered car makers are not in the business of car making, they are in the business of permit-renting, basically rent a permit to sell cars in China to global automakers.
 

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most favored son

I don't know about Chery being beaten up locally there in Anhui, but otherwise it seems to have enjoyed a teflon-like existence. Historically it managed to get a lot of passes from the authorities, despite it's illegal method of entering the car manufacturing business.
Here's an interesting piece that describes what I'm talking about:

It was published on the www.weda.gov.cn website in 2005.

"Jun. 12 , Bo Xilai, Minister of Ministry of Commerce, did research works in WEDA (Wuhu Economic & Technological Development Area), visited Chery Automobile Co., Ltd. He promised that Ministry of Commerce will support Chery Automobile Co., Ltd to explore markets at home and aboard and make the brand well-known with great efforts."

In any case it appears now in 2007, to have an unstoppable momentum.
I guess its a patriotism thing. Meanwhile Li Shufu is pedalling as fast as he can.
 

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Ulitmately it will be interesting to see what difference buying a foreign brand actually makes. If the Nanjing MG deal works out then expect more Chinese car makers to try and copy them. No one in Europe, the USA or the UK gives a stuff about Roewe, Brilliance or Cherry. But try and sell them an MG and a 'European' car and you have a foot in the door.
 

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Its less 'no one gives a stuff' and more that hardly anyone has heard of them. What they have heard is not too positive and so they just don't care.
 

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In a very crowded global automotive market, Chinese automakers have to develop and execute a distinct product and consumer value proposition to gain long term entry to established markets.

Often what works in the home market, does notwork in export markets.

If these manufacturers are not interested in opening their own distribution and want to rely solely on independant distributors, they will struggle to achieve success especially in the North American market.
 

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chinacartimes said:
You are not very bright.
No one in Europe does give a stuff about "Brilliance, Roewe or Cherry". Why would they? It's like asking people to get excited by the colour Black without showing them the colour first.

Next week MG will be relaunched in the UK. There will be many enthusiasts going to the relaunch and lots of press. The reason for this is that MG has some history and goodwill in the UK. By contrast how many people turned up when Brilliance launched their car in Germany? You can't buy the kind of good free publicity the 'heroic' Nanjing will get. If Roewe land their car in the UK car people will call it a rip off. People in the West increasingly want a brand.

Of course you have to sell good products to suceed. But history counts for a lot. It's why Smart has failed and MINI has suceeded. It is why Maybach (a brand no one remembered) failed and why Rolls Royce and Bentley are suceeding. It's why Lexus after billions spent has got no where in Europe and why BMW and Audi do well. I could go on a talk about Saturn and how they've struggled for years. In the West brands count. A lot of people don't want to drive cars made by Washing Machine makers they want to feel their car is MORE than a car (see BMW advert "it's only a car").

I have no doubt Brilliance and co will get there but it will a long hard struggle, made harder by having to tell people who you are.
 

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mgrovernut,

Every country has its own automotive preferences, some manufacturers do better than other in different countries. Some automotive brands are accepted in some countries, and not in others.
 

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AGR said:
mgrovernut,

Every country has its own automotive preferences, some manufacturers do better than other in different countries. Some automotive brands are accepted in some countries, and not in others.
I don't disagree. But my point is SAIC and Nanjing bosses were right to take the view that buying a brand would mean quicker access to new markets. Sure Cherry, Brilliance and Geeley could do well eventually but it will take much longer to attract buyers to a new brand than to one with a history.
 

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Which automotive market on the planet has the most future potential?

For any manufacturer in that market with an incredible future upside, how much of a priority is it to have its product accepted in other countries / markets?

In Europe and North America the markets are crowded, competitive, with compelling barriers to entry. Buying a brand might facilitate the initial acceptance, the MG brand resonates with which market / country?

At some point and time Chinese manufacturers will expand into other markets / countries...in the meantime they have an opportunity in China which does not exist anywhere else on the planet.
 

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The MG brand is very strong in the UK and has a strong enthusiasts fan base in the USA. It is also well like in many other EU counteries.

The other brands Nanjing bought the rights to are Austin, Morris and Wolseley. Austin and Morris are well known in a number of counteries.
 
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