China: Beijing Hopes To Tackle Crowded World Car Market

A Chery S16 family car on display in Shanghai in 2005 (epa) China is preparing to tackle the world automobile market in earnest with vehicles expected to sell for less than the equivalent models built elsewhere. The Chinese push to sell cars abroad will be just the latest in a series of Asian assaults that have transformed the auto industry over the last 40 years, starting with Japan and later South Korea. But can the Chinese hope for similar success?

PRAGUE, June 16, 2006 (RFE/RL) -- When China begins exporting in a new industrial sector, manufacturers in other parts of the world start to worry.

In the span of a few decades, China has risen from being a country characterized as the maker of cheap toys, to an economic giant. Its exports -- although not particularly high-technology -- are fiercely competitive in price and quality, and have often threatened to overwhelm more established products in developed countries.

Coming To America

Now Chinese auto companies are gearing up to take on the world. Two livewire Chinese private companies, Geely and Chery plan to introduce their first products in 2008 to the biggest and most competitive market in the world: the United States.

But it won't be easy, says British-based auto industry analyst Mark Bursa. He tells RFE/RL that one Chinese manufacturer began exports to some countries in Europe last year.

"They did an independent crash test on the car, and it was an absolute total deathtrap -- the bonnet came through the window and decapitated the dummy, and that sort of thing," Bursa says.

Clearly, says Bursa, the Chinese have some way to go in achieving safety and quality standards, and they still need to address emission-control issues.

An industry analyst based in Beijing, Alysha Webb of the "Automotive News Europe," agrees with that assessment.

"If you look at Chery, and how they keep delaying their U.S. introduction, you can see that Chinese automakers -- in terms of design and technology -- just are not yet ready for the U.S. market," Webb says.

Buying Expertise

But Bursa says the Chinese "are moving so quickly," and they are making use of foreign design expertise.

"They have hired a lot of [renowned] European designers to build them cars quickly, so a lot of the Italian companies like Pininfarina, Giugario, and Bertone and these people are actually turning out model [designs] for the Chinese car industry," Bursa says.

A fact little known in the outside world is that the Chinese auto industry already offers some 270 different vehicle models and variations from several dozen companies. They include both home-grown models and others made in China by established international companies, like General Motors, Volkswagen, BMW, Ford, Suzuki and Hyundai.

The deputy chief executive officer of Geeli, An Conghui, said on May 12 that his company accepts the challenge posed by record high world oil prices.

"The oil-price changes will certainly have a big impact on the car industry," An said. "This makes a lot of demands on the carmakers and raises the standard. We will have to think more about energy consumption when we are designing the product. It is a challenge for Geely. The rise in oil prices is a normal thing; we'll have to work more on energy consumption, in addition to safety, comfort, and design of our cars."

Start At The Bottom

Analysts say Geeli, Chery, and other manufacturers are expected to use the conventional technique for breaking into a new market -- namely, to undercut the prices of similar but better-established models, so as to tempt the public into overcoming their distrust of the unknown.

But analysts argue that's no way to make much money in the present sales climate -- with a fiercely competitive market and thin profit margins on low-priced cars.

The presence of a growing number of Chinese makes on the market will no doubt rattle other manufacturers, already hard-pressed by stagnant or decreasing sales.

U.S. carmaker General Motors reported a global loss in 2005 of $8.6 billion, while Ford in January announced plans to close 14 plants and shed 30,000 workers. In Europe, Fiat is still recovering from a financial collapse, VW is losing profitability in its cheaper range, and the French industry is also feeling the pinch.

"I don't think it's going to happen in the next, say, five years, but within the next decade I feel that for sure we are at least going to see one Chinese automaker who is a big global player," analyst Webb predicts.

So, painful as it may be for the competition, it looks as though the international auto industry will have to make room for China on the world market.