Malcolm Bricklin (Chery) and John Harmer (Geely) are in a race to bring cheap Chinese vehicles to America.
Harmer is forecasting a late 2008 sale date here, initially in only a few markets near ports. In January, Geely estimated it would sell 25,000 cars in its first year, and 100,000 in its fifth year.
Bricklin’s sales plans are a bit more grandiose: sales of 250,000 units in the first year and 1 million within five.
Those numbers seem impossibly high. But is the timeline accurate?
Prepare for the Inevitable
Chinese cars are a fait accompli in America. Not because America’s mature auto market needs a new set of nameplates, but because the Chinese government is behind an export push. This isn’t about national pride. Though China is the third-largest car market in the world, there aren’t many Chinese that can afford to own automobiles—yet. China is building state-of-the-art factories in anticipation of that demand. In the meantime, they intend to export product overseas. The government is backing up the talk. Chery was recently the beneficiary of a $610 million loan from the Chinese government to beef up production. The Financial Times reported in April that the government is considering approving new plants only with a commitment to export part of the capacity. George Peterson, president of forecasting firm AutoPacific, has visited Chery’s new plant. “It looks like they have no resource constraints whatsoever. They’re just pouring money at new facilities,” he says. The Hurdles With that in mind, heads were scratching over Geely’s unveiling of the first-ever Chinese car at an American auto show, in Detroit in January. The fit and finish were sloppy; apparently they couldn’t even glue the letters of the nameplate on straight. “It’s almost too bad they showed it, because it gave people a lot of negative opinions about the quality,” Peterson says. Geely intends to import the grandson of that vehicle, the CK sedan, to America. The grandson needs to evolve mechanically. While Geely claims to have passed U.S. rollover tests, Harmer stated publicly the sedan flunked emissions tests. (Geely denies this.) Geely says it “plans to conduct further market research and make vehicle im-provements to suit the market demand.” Reengineering could blow Harmer’s magical $10,000 price point out of the water. Readying brand new foreign-made vehicles for U.S. certification is a lengthy process, says Lynn Bevis of Wallace Environmental Testing Laboratories Inc., an EPA-approved emissions testing facility. Bevis says that manufacturers plan two years ahead to get a new vehicle certified, as the EPA requires data that demonstrates durability over the useful life of the vehicle. Manufacturers must constantly be looking down the road to comply with ever-tightening regulations from EPA and NHTSA. “My understanding is that some of these vehicles coming in from China are pretty far off,” she says. At least Geely has a car to test. Bricklin is still at the engineering stage. Yet Bricklin may ultimately have the advantage. Chery is building cars for export from the ground up with international design and engineering expertise, not retrofitting a car made for a third-world market. Bricklin seems to be ahead in building a dealer network too. After hitting a financing snag, Bricklin says he has 42 out of 125 dealers signed up. Harmer is still scouting locations for an American headquarters. The Mind of the American Consumer
The Chinese are notoriously protectionist when it comes to imports. China’s tariff on foreign-made automobiles is currently 28 percent, while the U.S. tariff on Chinese cars is 2.5 percent. Congress has introduced legislation (H.R. 4808) to prohibit the importation of Chinese vehicles until tariffs are equal. This bill is not likely to pass, as the Big 3 have an even bigger stake in China than Chinese manufacturers themselves. But the political backlash is real. And then there is the mind of the American consumer. In our online poll asking what would keep readers from buying a Chinese vehicle, two-thirds cited “patriotism,” almost twice as many more responses than the next highest answer, “mechanical quality.” What may trump patriotism is the lack of brand recognition. Selling unknown, untested cars in this brand-conscious society is a major step for a country generally known as a cheap wholesale producer. Geely Chairman Li Shufu has said that Geely engineers don’t yet know enough about the tastes of U.S. consumers to de-sign a car for them. A realistic timeframe Still, with all the known hurdles, Bricklin and Harmer’s predictions for a 2008 sales launch in the U.S. are not so far off from those of industry forecasters. Michael Dawson, a global forecaster for JD Power & Associates, says 2009. AutoPacific says the end of the decade. “It took the Japanese 20 years to catch on and the Koreans 10,” says Peterson. “It will probably take the Chinese five.” And Beyond
Perhaps bringing Chinese-made vehicles here to the U.S. is missing the real story. Chinese auto factory workers make $3.50 an hour while the average UAW worker costs automakers about $65 an hour. As has happened long ago with everything from sneakers and stereos and now to IBM computers, American automakers will be look-ing to China as a manufacturing base. “Maybe this is an inexorable step in the maturing of a major economy in the world,” Peterson says.
Chinese cars are a fait accompli in America. Not because America’s mature auto market needs a new set of nameplates, but because the Chinese government is behind an export push. This isn’t about national pride. Though China is the third-largest car market in the world, there aren’t many Chinese that can afford to own automobiles—yet. China is building state-of-the-art factories in anticipation of that demand. In the meantime, they intend to export product overseas. The government is backing up the talk. Chery was recently the beneficiary of a $610 million loan from the Chinese government to beef up production. The Financial Times reported in April that the government is considering approving new plants only with a commitment to export part of the capacity. George Peterson, president of forecasting firm AutoPacific, has visited Chery’s new plant. “It looks like they have no resource constraints whatsoever. They’re just pouring money at new facilities,” he says. The Hurdles With that in mind, heads were scratching over Geely’s unveiling of the first-ever Chinese car at an American auto show, in Detroit in January. The fit and finish were sloppy; apparently they couldn’t even glue the letters of the nameplate on straight. “It’s almost too bad they showed it, because it gave people a lot of negative opinions about the quality,” Peterson says. Geely intends to import the grandson of that vehicle, the CK sedan, to America. The grandson needs to evolve mechanically. While Geely claims to have passed U.S. rollover tests, Harmer stated publicly the sedan flunked emissions tests. (Geely denies this.) Geely says it “plans to conduct further market research and make vehicle im-provements to suit the market demand.” Reengineering could blow Harmer’s magical $10,000 price point out of the water. Readying brand new foreign-made vehicles for U.S. certification is a lengthy process, says Lynn Bevis of Wallace Environmental Testing Laboratories Inc., an EPA-approved emissions testing facility. Bevis says that manufacturers plan two years ahead to get a new vehicle certified, as the EPA requires data that demonstrates durability over the useful life of the vehicle. Manufacturers must constantly be looking down the road to comply with ever-tightening regulations from EPA and NHTSA. “My understanding is that some of these vehicles coming in from China are pretty far off,” she says. At least Geely has a car to test. Bricklin is still at the engineering stage. Yet Bricklin may ultimately have the advantage. Chery is building cars for export from the ground up with international design and engineering expertise, not retrofitting a car made for a third-world market. Bricklin seems to be ahead in building a dealer network too. After hitting a financing snag, Bricklin says he has 42 out of 125 dealers signed up. Harmer is still scouting locations for an American headquarters. The Mind of the American Consumer
The Chinese are notoriously protectionist when it comes to imports. China’s tariff on foreign-made automobiles is currently 28 percent, while the U.S. tariff on Chinese cars is 2.5 percent. Congress has introduced legislation (H.R. 4808) to prohibit the importation of Chinese vehicles until tariffs are equal. This bill is not likely to pass, as the Big 3 have an even bigger stake in China than Chinese manufacturers themselves. But the political backlash is real. And then there is the mind of the American consumer. In our online poll asking what would keep readers from buying a Chinese vehicle, two-thirds cited “patriotism,” almost twice as many more responses than the next highest answer, “mechanical quality.” What may trump patriotism is the lack of brand recognition. Selling unknown, untested cars in this brand-conscious society is a major step for a country generally known as a cheap wholesale producer. Geely Chairman Li Shufu has said that Geely engineers don’t yet know enough about the tastes of U.S. consumers to de-sign a car for them. A realistic timeframe Still, with all the known hurdles, Bricklin and Harmer’s predictions for a 2008 sales launch in the U.S. are not so far off from those of industry forecasters. Michael Dawson, a global forecaster for JD Power & Associates, says 2009. AutoPacific says the end of the decade. “It took the Japanese 20 years to catch on and the Koreans 10,” says Peterson. “It will probably take the Chinese five.” And Beyond
Perhaps bringing Chinese-made vehicles here to the U.S. is missing the real story. Chinese auto factory workers make $3.50 an hour while the average UAW worker costs automakers about $65 an hour. As has happened long ago with everything from sneakers and stereos and now to IBM computers, American automakers will be look-ing to China as a manufacturing base. “Maybe this is an inexorable step in the maturing of a major economy in the world,” Peterson says.
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