Riding on a Classic, Chinese Firm Enters U.S. Scene
A struggling Chinese manufacturer, the remnants of a failed British automaker and an ambitious American Indian tribe plan to pool their resources to rescue the iconic MG sports car from the automotive junkyard.
A consortium led by Nanjing Automobile Group announced a $2-billion plan Wednesday to construct a state-of-the art production facility in China, reopen a shuttered MG factory in England and open an assembly plant and a distribution center in the small town of Ardmore, Okla.
If the Nanjing-led group succeeds in rolling out the MG TF coupe by the middle of 2008, it could enter the U.S. market ahead of larger Chinese rivals Geely Automobile Holdings Ltd. and Chery Automobile Co.
Analysts said Nanjing and its partners had developed a plan that could help them avoid the marketing and political pitfalls that had befallen other Chinese companies that tried to invest in the United States.
In particular, experts lauded Nanjing’s decision to base its expansion on a globally recognized brand, because Chinese companies generally are stronger in manufacturing than in innovation and sales.
“They’re trying to climb up the value food chain, and it’s not very easy,” said Jason Kindopp, a China expert at Eurasia Group, a political risk consulting firm in New York. “They’re not very good on innovation. It totally makes sense for them to buy well-known brands.”
The Chinese-led group also will create 500 jobs in a state that has been hit hard by restructuring in the auto industry. This year General Motors Corp. closed a plant in Oklahoma City that employed 2,400 people.
Nanjing, China’ s oldest automaker, surprised the industry last year when it won the bid to acquire the assets of MG Rover Group Ltd. The British maker of the beloved TC convertible and other models had withdrawn from the U.S. market in 1980 and, after falling billions of dollars in debt, ceased production in England in the spring of last year.
Although Chinese sales are booming, Nanjing’s efforts to expand by adding new models, such as a sport utility vehicle, have foundered. Its larger rivals and foreign manufacturers are pouring billions of dollars into the domestic market, putting a squeeze on smaller, less efficient producers.
The acquisition of the MG brand name and tooling -- combined with the low-cost advantages of manufacturing cars and parts in China -- will give MG Motors North America Inc. an advantage in the competitive U.S. market, said Duke Hale, president and chief executive.
Hale said Nanjing, which will have a 49% ownership in the venture, is financing the bulk of the investment in the new Chinese factory. The remainder will be raised by U.S. investors, including his company, Davis Capital, he said.
A partnership with the Chickasaw nation, one of 39 Indian tribes in Oklahoma, also may bring additional tax breaks and other financial advantages to his U.S. operation, Hale said.
“Our competition, they’re going to bring cars specifically and exclusively designed in China,” Hale told reporters Wednesday at a news conference in Oklahoma. “We’ve got cars with European styling, European engineering, European flair and, oh, by the way, the big bonanza: a brand name called MG.”
Amy Polonchek, executive director of the Oklahoma Department of Commerce, said the project was expected to deliver about $69 million in direct investment and generate $189 million in new economic activity.
An infusion of Chinese cash could help ease tensions triggered by Beijing’s growing economic heft, trade experts said. Last year, Congress thwarted a bid by a state-owned Chinese company to purchase El Segundo-based Unocal Corp., which has since been acquired by Chevron Corp.
Nanjing and its rivals are following a path pioneered by Japanese and South Korean automakers, which began building factories in the U.S. in the 1980s and ‘90s. The Beijing government has urged Chinese companies to follow suit, relaxing restrictions on investing overseas.
Reviving a brand such as MG, which enjoys cult status among enthusiasts, won’t be easy, auto industry experts warn.
The Nanjing-led group -- knowing that customers may well be skeptical of an upstart Chinese manufacturer -- will have to produce a car that is well-designed and without flaws right out of the gate or risk damaging the brand’s reputation.
The group also will have to build a modern version of the British sports car that is affordable, because it will face competition from established popular models such as the Mazda Miata, said Jeremy Anwyl, president of auto information service Edmunds.com in Santa Monica.
It can be done, Anwyl said, pointing to BMW’s successful revival of the Mini Cooper. But the task may prove tougher because the group plans to produce some of its vehicles in the U.S.
“Exporting cars from China is more consistent with a low-cost, lower-priced approach to the marketplace,” he said. “When you look at a marketplace as competitive as the U.S., pricing advantage is a powerful differentiator.”
Hale, whose career included stints working for Britain’s Group Lotus, Isuzu Motors Ltd. and Mazda Motor Corp. of Japan, believes he can assemble his cars in Oklahoma almost as cheaply as they can be produced in China. That’s partly because of the incentive package offered by state and local officials, which includes tax breaks and technical training assistance, and the relatively low cost of labor and real estate.
The new MG team also is counting on additional help from the Chickasaws, a 38,000-member tribe based in Ada, Okla. Under federal law, Indian tribes are considered sovereign nations and are exempt from paying taxes. Hale said his group was researching ways that the MG operation could benefit financially from a partnership with the tribe.
“I can tell you, there may be some unique tax advantages there,” he said.
Marc Nuttle, a partner in the MG project, said he was working with the Chickasaws on a plan to develop a 3,000-acre parcel north of Ardmore, Okla., where the MG facility would be based.
That site was selected because it has a long runway that could be expanded to accommodate large cargo aircraft and is close to a rail line and freeways.
In addition to casinos, the Chickasaws operate a medical services company, a historic hotel and a factory that makes chocolate-covered potato chips. This year, the tribe projects that its businesses will net nearly $200 million.