New Yugos???
The Challengers: A New Honda, Or a New Yugo?
There are dozens of Chinese carmakers, and many aim to crack the U.S. market. But not all are created equal.
Newsweek International
July 24, 2006 issue - Two decades after Toyota, Nissan and Honda began grabbing market share from the Big Three American automakers, South Korean upstarts Hyundai and Kia proved that the model could be replicated. Now a new country has appeared in the rearview mirror: China. Its booming domestic auto industry is looking to expand beyond its borders, and five automakers have announced plans to enter the U.S. passenger-vehicle market as early as next year. Is another foreign-car invasion in the cards?
Not just yet. Most industry analysts agree that China has what it takes to make globally competitive vehicles in the not-too-distant future. But they also note that the U.S. market barely resembles the inefficient, Detroit-centered oligopoly Japan cracked open two generations ago with snappy, well-engineered cars like the Toyota Corolla and Datsun 240Z. Today's America more closely resembles Europe—which is to say, a market that is relatively unprotected and therefore crowded with all the world's top brands, each fighting hammer and tongs for a small market share. Furthermore, today's cars are hardly the Brats and Bugs that once rolled off ships from Asia or Europe. "There are more microprocessors on the cheapest car sold today than on Neil Armstrong's lunar lander," says Denis Cuneo, a senior vice president at Toyota.
The conventional view is that Chinese cars won't start trickling into showrooms until 2009, though many plan to arrive sooner. As with Japanese and Korean firms before them, their makers will need to counter consumer suspicions and establish brand appeal, as well as national distribution, sales and service networks—all of which can take years to accomplish. Still, there is a push factor. Within China, a battle for domestic dominance now rages among a handful of big players; the first ones to establish themselves as global brands are the most likely to win government backing when the inevitable pressure to consolidate builds from Beijing. "Chinese cars are a fait accompli in America," writes Chris Brown, senior editor of the U.S. automotive trade journal Business Fleet. "Not because America's mature auto market needs a new set of nameplates, but because the Chinese government is behind an export push."
Of the many Chinese automakers that aspire to storm the American market, Zhejiang-based Geely Automotive Holdings leads the pack in timing, says Tina Jantzi, manager of North American forecasting for J.D. Power Automotive Forecasting. Its strategy borrows heavily from its Japanese and Korean predecessors, like relative newcomer Kia: establish a small footprint in the market with affordable economy cars, gain information about consumer preferences, build brand confidence and expand slowly. The company is building a U.S.-based executive staff led by American John Harmer, and this year sent 6,000 subcompacts to Puerto Rico as a test market. Geely says its sedan has met U.S. rollover standards, although in March Harmer said its engine failed U.S. emissions tests (Geely's home office denies this). Whatever the case, Geely has yet to reveal details about sales or distribution and is not expected to sell its first vehicles in the United States until mid-2009, according to J.D. Power, which estimates that Geely will sell just 7,500 cars in 2010.
One downside to Geely's strategy is that the sweet spot in the U.S. market isn't with subcompacts, but with midsize cars like Toyota's Camry and luxury brands like Lexus and BMW, as well as trucks and SUVs. Chery Automotive, based in Anhui province, has teamed up with auto impresario Malcolm Bricklin in an effort to move straight into those high-margin categories. "Basically," says Jantzi, "he wants to skip [the entry steps] and hit hard at the segments of the U.S. market that seem to be growing."
In the 1960s, Bricklin famously brought pint-size Subarus to America in an early chapter of Japan's auto invasion; in the 1980s he imported the infamous Yugo sedans from a crumbling Yugoslavia. His new vision: a line of upmarket Chinese-made cars "that will compete with Mercedes, BMW, Lexus and Jaguar but sell for 30 percent less," he says. "The owners of those brands aren't going to buy our cars, we don't think. But the people buying Hondas, Nissans, Toyotas and Subarus will."
Established in 1997, Chery is China's third largest-selling brand today, behind GM and Volkswagen. With modern factories and no foreign partner, Chery fit with Bricklin's radical plans for a line of cars designed in Europe, built in China and sold in the United States. Bricklin's company, Visionary Vehicles, would be Chery's North American retail arm, design house and minority shareholder. He has five designs in the works, including a retractable hardtop roadster that wowed critics at the Shanghai Motor Show this year and a crossover SUV that's already in production. Yet by Bricklin's own admission, the SUV "can't give us the five-star ratings we wanted, it can't accommodate all the air-bags we wanted, so we have started the process of redesigning cars, which is going to push us back a year." Originally, Chery's U.S. debut was scheduled for late 2007.
A dark horse is Nanjing Automotive, which bought the remains of MG Rover last year and just announced a joint venture to build a new MG roadster in Oklahoma, with a target of building 12,000 to 16,000 cars a year, starting as early as 2008. The head of the U.S. operation, Duke Hale, says the MG name will give him a jump on Chinese rivals that "are not exactly household names."
True, they're not. But some of their allies are. Shanghai Automotive Industrial Corp. is a joint-venture partner of both GM and Volkswagen in China; it plans to launch its own brand of vehicles next year and to export 45,000 cars by 2010. That's if its partners don't do so first. In a final twist, analysts say, it's conceivable that the first Chinese-built car to reach the United States may come from a plant run by a famous Detroit name like GM, Ford or Chrysler.
With Duncan Hewitt in Shanghai http://www.msnbc.msn.com/id/13879453/site/newsweek/
Newsweek International
July 24, 2006 issue - Two decades after Toyota, Nissan and Honda began grabbing market share from the Big Three American automakers, South Korean upstarts Hyundai and Kia proved that the model could be replicated. Now a new country has appeared in the rearview mirror: China. Its booming domestic auto industry is looking to expand beyond its borders, and five automakers have announced plans to enter the U.S. passenger-vehicle market as early as next year. Is another foreign-car invasion in the cards?
Not just yet. Most industry analysts agree that China has what it takes to make globally competitive vehicles in the not-too-distant future. But they also note that the U.S. market barely resembles the inefficient, Detroit-centered oligopoly Japan cracked open two generations ago with snappy, well-engineered cars like the Toyota Corolla and Datsun 240Z. Today's America more closely resembles Europe—which is to say, a market that is relatively unprotected and therefore crowded with all the world's top brands, each fighting hammer and tongs for a small market share. Furthermore, today's cars are hardly the Brats and Bugs that once rolled off ships from Asia or Europe. "There are more microprocessors on the cheapest car sold today than on Neil Armstrong's lunar lander," says Denis Cuneo, a senior vice president at Toyota.
The conventional view is that Chinese cars won't start trickling into showrooms until 2009, though many plan to arrive sooner. As with Japanese and Korean firms before them, their makers will need to counter consumer suspicions and establish brand appeal, as well as national distribution, sales and service networks—all of which can take years to accomplish. Still, there is a push factor. Within China, a battle for domestic dominance now rages among a handful of big players; the first ones to establish themselves as global brands are the most likely to win government backing when the inevitable pressure to consolidate builds from Beijing. "Chinese cars are a fait accompli in America," writes Chris Brown, senior editor of the U.S. automotive trade journal Business Fleet. "Not because America's mature auto market needs a new set of nameplates, but because the Chinese government is behind an export push."
Of the many Chinese automakers that aspire to storm the American market, Zhejiang-based Geely Automotive Holdings leads the pack in timing, says Tina Jantzi, manager of North American forecasting for J.D. Power Automotive Forecasting. Its strategy borrows heavily from its Japanese and Korean predecessors, like relative newcomer Kia: establish a small footprint in the market with affordable economy cars, gain information about consumer preferences, build brand confidence and expand slowly. The company is building a U.S.-based executive staff led by American John Harmer, and this year sent 6,000 subcompacts to Puerto Rico as a test market. Geely says its sedan has met U.S. rollover standards, although in March Harmer said its engine failed U.S. emissions tests (Geely's home office denies this). Whatever the case, Geely has yet to reveal details about sales or distribution and is not expected to sell its first vehicles in the United States until mid-2009, according to J.D. Power, which estimates that Geely will sell just 7,500 cars in 2010.
One downside to Geely's strategy is that the sweet spot in the U.S. market isn't with subcompacts, but with midsize cars like Toyota's Camry and luxury brands like Lexus and BMW, as well as trucks and SUVs. Chery Automotive, based in Anhui province, has teamed up with auto impresario Malcolm Bricklin in an effort to move straight into those high-margin categories. "Basically," says Jantzi, "he wants to skip [the entry steps] and hit hard at the segments of the U.S. market that seem to be growing."
In the 1960s, Bricklin famously brought pint-size Subarus to America in an early chapter of Japan's auto invasion; in the 1980s he imported the infamous Yugo sedans from a crumbling Yugoslavia. His new vision: a line of upmarket Chinese-made cars "that will compete with Mercedes, BMW, Lexus and Jaguar but sell for 30 percent less," he says. "The owners of those brands aren't going to buy our cars, we don't think. But the people buying Hondas, Nissans, Toyotas and Subarus will."
Established in 1997, Chery is China's third largest-selling brand today, behind GM and Volkswagen. With modern factories and no foreign partner, Chery fit with Bricklin's radical plans for a line of cars designed in Europe, built in China and sold in the United States. Bricklin's company, Visionary Vehicles, would be Chery's North American retail arm, design house and minority shareholder. He has five designs in the works, including a retractable hardtop roadster that wowed critics at the Shanghai Motor Show this year and a crossover SUV that's already in production. Yet by Bricklin's own admission, the SUV "can't give us the five-star ratings we wanted, it can't accommodate all the air-bags we wanted, so we have started the process of redesigning cars, which is going to push us back a year." Originally, Chery's U.S. debut was scheduled for late 2007.
A dark horse is Nanjing Automotive, which bought the remains of MG Rover last year and just announced a joint venture to build a new MG roadster in Oklahoma, with a target of building 12,000 to 16,000 cars a year, starting as early as 2008. The head of the U.S. operation, Duke Hale, says the MG name will give him a jump on Chinese rivals that "are not exactly household names."
True, they're not. But some of their allies are. Shanghai Automotive Industrial Corp. is a joint-venture partner of both GM and Volkswagen in China; it plans to launch its own brand of vehicles next year and to export 45,000 cars by 2010. That's if its partners don't do so first. In a final twist, analysts say, it's conceivable that the first Chinese-built car to reach the United States may come from a plant run by a famous Detroit name like GM, Ford or Chrysler.
With Duncan Hewitt in Shanghai http://www.msnbc.msn.com/id/13879453/site/newsweek/
