Chinese Automakers Find Routes to Western Markets
On a clear morning, hundreds of uniformed workers at Jiangling Motors stood at attention as a procession of 200 Landwind sport utility vehicles, adorned with red ribbons, made their way toward Shanghai’s port on the way to Belgium.
Firecrackers popped. Red banners fluttered in the wind. China’s auto industry had begun its march into Europe.
“I sure felt very happy and proud,” said Xiong Wu, a senior Jiangling manager, walking through the assembly plant on a recent day.
Chinese factories, already filling the world’s stores with toys, textiles and appliances, are starting to make inroads into the West’s automobile market. The Middle Kingdom is expected to produce 6.4 million cars and trucks next year and surpass Germany to become the third-largest vehicle manufacturer in the world.
Although most of the vehicles will be for China’s own burgeoning market, a growing number of the nation’s 100-plus automakers are also eyeing Europe and North America.
Hebei Zhongxing Automobile in Baoding, about 85 miles south of Beijing, is negotiating with Mel Rapton Honda in Sacramento to sell its light trucks and SUVs priced at $10,000 -- about half the cost of the lowest-priced SUV currently on the U.S. market. It’s already exporting to markets elsewhere in Asia and to Africa and Russia.
Brilliance China Automotive, which has a joint venture with BMW, will soon be selling its sedans in Germany. Geely, maker of a low-priced sports car called CD, or China Dragon, has similar plans.
And Chery, a well-financed state-owned company, is aiming to ship cars to the United States in 2007 at an annual rate of 250,000. The company, based in the Yangtze River town of Wuhu in Anhui province, is preparing its launch in the United States with Malcolm Bricklin, the 66-year-old Philadelphia car buff who brought the ultra-cheap Yugo to America in the 1980s.
Chery declined to comment, but Bricklin was eager to talk about his new company, New York-based Visionary Vehicles. He said he had signed up 40 dealers in the United States to sell five Chery models. Unlike the cut-rate cars sold in China, Bricklin said, the Chery vehicles destined for the U.S. market will be luxury models that will sell for $20,000.
“It’s not going to be like low-priced textiles,” he said.
China’s entry into the world market has captured the attention of Detroit, Germany and Japan. It comes at a time when America’s Big Three carmakers are struggling to keep up with foreign rivals, in large part because of soaring expenses for their retirees and graying workforces.
Many expect that China will use its armies of low-wage workers -- as it has done in the textile and electronics industries -- to produce cheaper vehicles and snatch market share from established automakers.
General Motors, Ford and DaimlerChrysler shell out on average $65 an hour for each factory employee, including health benefits. That’s about a third more than what Japanese car firms pay their U.S. production workers. And it’s about 50 times the rate at Chinese factories like Jiangling’s.
When made-in-China cars arrive on U.S. shores, analysts say, they could trigger political backlash and protests more virulent than those over the flood of Chinese socks and bras.
“There could be a major clash,” said Michael Dunne, president of Automotive Resources Asia, a research and consulting firm in Shanghai.
Members of the United Auto Workers union at GM recently agreed to absorb billions of dollars of healthcare costs, and UAW workers at auto parts maker Delphi Corp. have been asked to take a two-thirds pay cut. UAW officials didn’t respond to repeated interview requests.
Given the challenges of meeting U.S. auto emission, safety and quality requirements, some experts believe that it’ll be some years before China poses a serious competitive threat.
And Chinese automakers are already learning about rigid safety standards and cutthroat competition.
Barely two months after the first batch of Landwinds arrived in Antwerp, the SUV was rated zero in a safety test by an auto club in Germany. The results were reported on the eve of a major auto show in Frankfurt, where the Landwind and other Chinese cars were on display.
The Frankfurt show was meant to be a coming-out party for Landwind, but marketing manager Liu Hongshan remembered how the German auto club, ADAC, distributed copies of the crash-test report at the exhibition.
“They were just a few booths away from us,” he said with obvious irritation.
Liu, who at 33 is part of China’s new generation of globally minded managers, tried to fight back by publicizing positive results from a separate crash test conducted by a German inspection firm hired by Jiangling. But the damage had been done. Sales of the Landwind, priced at about $21,000, or half the price of SUVs in the local market, still haven’t recovered. The company has sold fewer than 1,000 in Western Europe since the May ceremony at the Nanchang plant.
Jiangling and other Chinese automakers have for the last couple of years been exporting to Africa, South Asia and the Middle East. But the overall volume has been small -- 20,000 passenger cars through September this year.
Still, few are taking the Chinese lightly.
“As you realize, it took the Japanese maybe 20 years to get a real foothold in the U.S.,” said David Elshoff, a Chrysler spokesman in Auburn Hills, Mich. “It was 10 years for the Koreans. We fully anticipate the Chinese could do it in less than five.”
It is well known that the top Chinese automakers are getting plenty of backing from the state. Chery is said to have recently received a government loan of $610 million. Chinese firms also have learned and borrowed -- some would say pirated -- through joint ventures with foreign carmakers.
On Friday, General Motors said it had settled a dispute with Chery, which had been accused of pirating the design of GM’s Spark mini car. GM said “Chery” sounded too much like “Chevy,” the nickname of its Chevrolet brand. Chery agreed in September that it wouldn’t market its vehicles under the Chery name in the United States.
In China, some people say the German auto club report was evidence that Jiangling rushed into Europe without paying enough heed to quality. Others say it was a deliberate attempt by protectionists to block a viable Chinese rival.
Liu, a Nanchang native who returned home after graduating from Shanghai’s prestigious Jiaotong University, left little doubt where he stood.
“I remember Hyundai in the beginning facing great pressure,” he said, referring to the South Korean company that now sells highly rated cars in the U.S. market. “I won’t be driven away.”
State-owned Jiangling was founded in 1968 and has 18,000 employees and $215 million in cash. The company controls entire city blocks of buildings and apartments, which house some of the workers who make commercial vehicles, auto generators and accessories. Jiangling has joint-venture deals with Isuzu and Ford, which owns 30% of Jiangling’s shares.
Jiangling saw China’s fast-growing car market and figured there was comparatively little competition in SUVs. So in 1999, the company began by disassembling other SUVs and figuring out how they were put together. Three years later, the Landwind was rolling out of the assembly factory, which is surrounded by rice fields.
Analysts say the Internet and easy access to auto technology have helped the Chinese. Automakers here also have hired outside design firms and engineering consulting houses, rather than spending a lot of time and money growing their own research and development teams, said Sun Jian, a consultant at A.T. Kearney in Shanghai.
“But the learning curve is still there,” he added.
Sun said Jiangling moved too fast. “It’s a lesson for everybody in China,” he said. “They can buy technology, but they can’t buy experience.”
The central government is pushing Chinese companies to go global by giving tax breaks for selling overseas. There’s another big reason carmakers in China are in a hurry to export: They’re not selling vehicles fast enough at home. Through September, sales of cars, trucks and buses in China rose 10% to 4.14 million units compared with a year ago. But manufacturers in China, both foreign and domestic combined, produced about 70,000 more vehicles than were sold -- and they’re aggressively adding plants and increasing capacity.
Honda is the only foreign carmaker to have exported Chinese-made cars to the West. Since this summer, Honda has shipped more than 3,500 of its subcompact Jazz produced in Guangzhou, China, to Germany. The Japanese automaker has been making cars for the Chinese market for seven years.
“They’re exactly the same,” said Honda spokesman Zhu Linjie in Beijing, referring to the Jazz assembled in China and Japan.
The cost to make the Jazz in China, however, isn’t any less than in Japan, he said. Labor is much more expensive in Japan, but the Honda plant in Japan is much more automated, workers are more efficient and supplies are obtained locally, whereas 40% of Jazz parts for the Guangzhou operation, including steel, is brought from Japan at considerable cost.
But once China’s supply chain improves and carmakers such as Honda produce large numbers of vehicles, the wage and material cost differential will make it tough to beat Chinese prices.
Jiangling has already shown it can build cheap cars. Its aim is to build vehicles that are cheap and good. Inside the company’s main assembly factory in Nanchang, a big, red banner is stripped across the top: “Quality begins from my heart,” it reads.
Below the sign, workers wearing blue vests put screws on bumpers by hand. Others crouch inside shells of Landwinds moving along a slow conveyor, fastening the door strip by pounding it with a mallet. Almost everything is added and secured by human hands, unlike American assembly plants in which robots do much of the work.
Xiong Wu, the assembly manager, said the lack of robots didn’t mean the company was skimping on quality. The factory introduced a quality-check program from Ford, he said, and workers use the best equipment available, including tools from Japan and the United States.
The factory also organizes regular skill competitions. Recently, Xiong said, 10 workers in the interior shop received bonuses of about $25 each, one-fifth of a month’s wages for most workers. Managers such as Xiong earn about $250 a month.
The Landwind operation has a workforce of about 1,400, roughly half of which is involved in production. Of that, 220 workers focus on testing and repairing vehicles.
Liu acknowledged that his company had a lot to learn, but he had little doubt that Jiangling and other Chinese carmakers would export to the West in significant numbers.
“It won’t be just low-end clothing or furniture,” Liu said. “One day it will be autos.”
Cao Jun in The Times’ Shanghai bureau contributed to this report.