Will China's Chery conquer auto market?
|
Beijing aspires to move up the value chain in manufacturing industry and expand its economic reach globally
|
Chery's story is in many ways emblematic of China's wider economic canvas. Ambitious and audacious, the company has achieved much and often against expectations in its just decade-long existence.
PHOTO: PALLAVI AIYAR
NEW DESTINATION: Workers carry out a check on a car at the Chery assembly plant in Wuhu city, China.
THE WORD cherry to most in India, as in the rest of the world, invokes images of a rounded, red fruit. But if one company in China's central province of Anhui, has its way, the word will soon be inextricably linked in the global imagination with Chinese cars; cars that according to auto analysts could begin to make substantial dents in world markets, soon.
Chery Automobile Co Ltd, a state-owned car manufacturer headquartered in Anhui's Wuhu city, is one of the auto companies that the established heavyweights of the car world from Detroit to Toyota city are keeping a particularly close eye on.
Just seven years since the company's first car came off the production line in December 1999, Chery has grown to become China's top independent car maker (ranking fourth overall) with sales in 2006 totalling over 3.05 lakh units, a jump of 62 per cent over the previous year. In the same year Chery also emerged as the country's biggest car exporter, selling over 51,000 cars to some thirty countries in South East Asia, Africa, the Middle East and South America.
Plans to enter India
Chery began selling cars in Sri Lanka and Pakistan about a year ago and according to the General Manger of Chery International, Zhang Lin, it is actively mulling over plans to enter the Indian market.
When DaimlerChrysler announced a few months ago that it planned to sell its unprofitable Chrysler unit, the rumour doing the rounds in industry circles was that Chery might be a buyer in the running. The unit has since been sold to a New York-based private equity firm but the fact that Chery was included in discussion surrounding the future of Chrysler is indicative of the long road the company has tread since its founding, only a decade ago.
However, for all its successes Chery has also been dogged by controversy since its inception, sued for copying designs from western car makers like General Motors and accused of being unfairly bolstered by government support and subsidies.
Moreover, much touted plans for entering the mature western European and U.S. markets by this year have been indefinitely put off after a deal with Malcolm Bricklin of Visionary Vehicles broke down last November. According to that deal, five lines of cars designed by Chery were expected to sell 2.50 lakh units in the U.S. by the end of 2007. The deal ended amidst accusations of foot dragging and design stealing on Chery's part.
Jin Yibo, a Chery spokesperson, dismissed these accusations and said the company had decided to scale back its U.S. expansion plans since "the U.S. is a high-end market with high demands and standards that we in China are still not ready to meet.'' Mr. Jin singled out environmental standards, management skills and electronic know-how as areas where Chinese auto makers lagged behind their more advanced counterparts.
Chery's story is in many ways emblematic of China's wider economic canvas. Ambitious and audacious, the company has achieved much and often against expectations in its short decade-long existence. Yet its aspirations to break into high-value developed markets remain constrained by the limitations of technology and innovation it has yet to overcome.
Chery also remains dependent on government backing which gives it access to long-lines of credit, leading some analysts to question the company's long-term ability to stand unprotected on its own feet. Like Chery, China as a whole aspires to move up the value chain and expand its economic reach globally.
Although the country has successfully metamorphosed into the factory of the world over the last two decades, international attention has been focussed on the Made in China price, given the country's deep pool of cheap labour, rather than Made in China brands. For Chery and other Chinese auto makers like Geely and Brilliance the goal is thus to emerge as the new Toyotas and Hyundais of the world, valued not only for their price but also for their design and quality.
Last year China displaced Japan to emerge as the world's second largest vehicle market after the U.S. passenger car sales alone increased to 3.8 million in 2006. More than 120 car models are produced locally in China with about 30 car manufacturers battling it out for market share.
The majority of these car makers compete for the cheap, small car market, an overcrowded segment plagued by declining profitability and excess production capacity, forcing many car makers to look to overseas markets for expansion. In 2006 Chinese automakers exported around 3.25 lakh vehicles, 80 per cent of which were low-priced trucks and buses, the remaining 20 per cent overwhelmingly cheap, compact cars, popular in the developing world. The markets of the developed world continued to elude the Chinese.
Real challenge
Dominik Declercq, China Representative for the European Automobile Manufacturers Association, however, predicts that it will only take five years or so for Chinese car makers to make the international cut when it comes to quality, emission standards and safety requirements. He says given the access of domestic car companies to the deep pockets of the government, current technological limitations can be easily overcome with adequate investment.
The real challenge for these auto upstarts, Mr. Declercq says, will be honing marketing skills, establishing distribution and spare-parts networks and developing after sales servicing. These will all be necessary to create a "quality image for Chinese cars in Western minds.''
Korean and Japanese auto companies were confronted by these same challenges when they first set out to expand abroad. And just as they were able to meet these successfully despite much initial international scepticism, Mr Declercq believes so will their Chinese counterparts. "There is strong will, political drive and generous funding to make this (Chinese exports) happen,'' he concludes.
Already a number of Chinese car majors including Chery have begun to export to eastern European markets like Ukraine, Poland and Russia. Mr Declercq believes this gives them a valuable foothold into more developed western European markets in addition to allowing them time to study and learn before launching a full scale entry into the mature markets of the West.
Indeed, although the expansion of Chinese cars into the U.S. and Europe has been slower in materialising than predicted a few years ago, this could be the calm before the storm. And given Chery's ongoing plans for entering the Indian market, it's not only the GMs and Toyotas that need to keep a sharp eye on developments in China. Tata and Maruti would also do well to not rest on their laurels
PALLAVI AIYAR
Recently in Wuhu, Anhui
Printer friendly
page
Send this article to Friends by
E-Mail
Business
