By Aida Sevilla-Mendoza
Philippine Daily Inquirer
CHINA is the third largest country in the world in land area and the largest in population with 1.2 billion. China is also, after the United States, the world’s second largest car market (8.8 million motor vehicles sold in 2007) with sales rising nearly 20 percent every year, and it aims to be the world’s second largest automobile manufacturing country. Naturally, when this giant holds its bi-annual international auto show, it has got to be on the grandest scale, with car makers from all over the world scrambling to showcase their best and gain market share.
The 10th Beijing International Automotive Exhibition, a.k.a. Auto China 2008, opened on April 22 and ended last Monday at the new China International Exhibition Center. It had 106,000 square meters of indoor space in eight halls, all displaying passenger vehicles plus 80,000 sq m outdoors; 2,100 exhibitors of which 225 were from 18 countries; a total of 890 models, almost 100 brand-new, with 55 concept cars, seven global debuts and 24 Asian debuts. Nearly 10,000 domestic and overseas reporters attended the press days (April 20-21) and 600,000 visitors were expected, including 30,000 foreigners.
The theme, “Dream, Harmony and New Vision” aptly has “dream” as the first word. Independent Chinese car manufacturers — those that have not formed joint ventures with European, American, Japanese or Korean brands — dream of breaking into the European and North American markets, which comprise 50 to 60 percent of the world market. Among the dreamers is Chery, China’s foremost state-owned automaker, which displayed 26 models in a 2,500-sq-m exhibit area, one of the largest in the show. The theme “Safe and Save” underscored Chery’s goal to build much safer, more energy-saving and more eco-friendly cars.
Faira and Higgo
At Auto China 2008, Chery unveiled two new concepts: the Faira series, Chery’s interpretation of stylish, fuel-efficient, emission-reducing 1.3-liter small cars and the Higgo SUV and pickup to meet the growing demand for sturdy utility vehicles in China. An upgraded version of the A3 sedan, was shown, ready for launching in China this year. The Oasis Series. consisting of vehicles with diesel, hybrid, fuel cell and flex fuel engines, included the Chery A5 hybrid, the official car of the 2008 Beijing Olympics.
The display of 26 models at Auto China 2008 showed Chery’s determination to expand its product lineup to cover all passenger vehicle market segments and to eventually achieve global recognition as an independent international brand. In terms of sales by brand, Chery ranks third in China behind Volkswagen and General Motors. At a press conference, Dr. Zhang Lin, general manager of Chery International, said that Chery began exporting cars in 2001 (four years after its factory began operating), exported 119,800 units in 2007 to 60 countries and plans to export 180,000 units this year. For five years now, Chery has led passenger vehicle manufacturers in China in export volume.
Every year in Wuhu, Chery produces 650,000 vehicles, 400,000 engines and 300,000 gearboxes. In 2007, Chery sold 387,000 cars and last August rolled out its millionth car. Chery has more than 500 distribution and service centers in China and factories in Russia, Ukraine, Iran, Egypt, Indonesia and Uruguay. Aside from a technology testing center and a planning and design institute, Chery has an Automotive Engineering and Research Institute with more than 5,000 engineers in Wuhu.
Deals
Last year, Chery struck separate deals with Fiat and Chrysler whereby Chery will supply engines to the Fiat group and design and develop seven new small car models for Chrysler starting with the A1, which will be sold in Mexico under the Dodge brand. Dr. Zhang said that even without Chrysler, Chery was developing the A1 for the global market. As it is, Chrysler engineers have gone to Wuhu and Chery engineers have gone to Mexico to study local market and road conditions.
However, Chery’s drive to enter the US market was stalled somewhat when Phil Murtaugh, the CEO of Chrysler’s Asia operations, told the Associated Press in Beijing that neither Chery nor Chrysler think that the A1 has met Chyrsler’s requirements for safety. Murtaugh said that safety is “a huge challenge” because of the A1’s size and its body structure needs work.
Dr. Zhang admitted that meeting US and European homologation requirements in terms of safety and emissions will take some time, but Chery is “technically confident” that it can. Durability is not a problem, said Dr. Zhang, since Chery tests its cars in the heat of Saudi Arabia’s desert and the cold of Russia’s winter. To prove the reliability of its cars, Chery switched on the ignition of an A3 for a 100,000-kilometer uninterrupted public test at the Beijing auto show.
While more and more car buyers in the United States are switching from big sport utility vehicles to small, fuel-sipping cars, those in China are increasingly interested in big SUVs and full-size luxury cars. Blame it on the high cost of gasoline in the United States ($3.50 a gallon) while China’s subsidized fuel price (below $3 a gallon) and the rising wealth of the Chinese middle class have stimulated sales of bigger, more upscale vehicles.
The April 2008 China Automotive Review reports that last year, 357,400 units of SUVs were sold in China, up 50 percent. For the first two months this year, sales of SUVs in China jumped 38 percent and sales of luxury cars rose 30 percent. In 2007, sales of mini- and subcompact cars such as the Chery QQ grew just 3.9 percent to 1.27-million vehicles even as sales of compact and midsize cars like the Volkswagen Jetta and Toyota Camry grew 32 percent to 3.34-million vehicles, the auto market researcher CSM Worldwide said.
Bigger
Even first-time car buyers, who according to J.D. Power and Associates account for four-fifths of all new cars sold in China, want bigger, more impressive vehicles. The shift in China’s booming car market (1.85-million vehicles sold in the first quarter of 2008 alone) is good news for multinational car manufacturers like VW, General Motors, Peugeot, Fiat, Renault, Honda, Toyota, Ford, that have joint ventures with Chinese firms. Ditto the luxury car makers doing business in China, where 177 Ferraris were sold in 2007, Mercedes-Benz sales went up 50 percent and BMW, up 42 percent year on year. Incidentally, China is the world’s third largest market for Rolls Royce.
But China’s growing appetite for pricier cars presents a problem for independent, home-grown Chinese automakers like Chery Automobile Co. that have focused on low-cost ($4,500) subcompacts like the Chery QQ. The trend did not affect Chery’s bigger models such as the 1.6-liter A5 and the 2.0-liter Eastar, but Chery had to rely largely on strong overseas demand for the QQ to boost 2007 sales by 30 percent from a year earlier to a total of 392,000 vehicles.
In 2007, according to the Chinese Commerce Ministry, China sold 612,700 cars abroad, mostly in the emerging markets of Latin America, the Middle East, Eastern Europe, Russia and Southeast Asia, with Chery as the leading exporter. Not surprisingly, China carmakers are cultivating markets in the developing countries where safety and emission standards are lower and a cheap price is a deciding factor.
Safety
But even in the emerging markets, concerns about the safety and quality of Chinese cars prevail. To win customers, Chinese auto dealers have to offer extended warranties and prices that are 20 to 25 percent lower than competitors’. Unfortunately, several made-in-China vehicles such as the Landwind SUV and Brilliance Auto’s B56 sedan flunked crash tests conducted by the Association of German Automobile Clubs (Adac) and US magazine Car and Driver.
Although Chery and other independent Chinese brands have a long way to go to overcome the safety issue, they are already eyeing the lucrative US and West European markets. At its 2008 International Business Conference in Beijing, Chery’s action plans for this year included an entry strategy for Europe and the United States, developing International Export Model Standard Versions and choosing which products are ripe for these highly sophisticated and discriminating markets.
Chery is tapping foreign automotive expertise to improve its products such as Italian auto design studios Bertone, Pininfarina and Turino (the latter for the Faira and Storm 2 concept cars exhibited at the recent Beijing Auto Show) and auto parts/components manufacturers such as Bosch, Delphi, Mobil, Lear, Autoliv and Valeo. Chery’s plant in Wuhu has the latest machinery from Germany and robots from Italy.
Dream
In its dream to establish itself as a world-class independent international brand in the global car market, Chery is following Toyota as its benchmark and role model. Despite the formidable hurdles in their path, particularly regarding safety and quality, China automakers aspire to eventually take on American, German and Japanese car manufacturers in their own home turf.
The inexorable march of China’s automotive industry toward this goal is being closely watched by the whole world. Will the Chinese succeed in graduating from the emerging markets to Western Europe and North America the way the Japanese and South Korean automakers did?
Certainly, it will take years of upgrading and brand-building before Chinese cars connote quality instead of cheap prices. But industry observers note that China has a fast learning curve. As some people are saying, it took Japanese carmakers 30 years and Koreans, 10 years. China will take only five.
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TODAY’S BUMPER STICKER: Get in. Sit down. Shut up. Hang on.
