Difficult road ahead



July 4, 2005


  
The Chery plant in Wuhu, Anhui province, makes the popular QQ subcompact, which General Motors claims is a copy of its Chevrolet Spark that is also built in China.
XINHUA

This small city in Anhui, one of China's poorest provinces, has little to offer in the way of English-language education. So the families of many Western-trained Chinese engineers live in Shanghai, five hours away by train.

The night life in Wuhu, population 750,000, amounts to singing karaoke at one of its two four-star hotels. Taxi cabs and trucks share the road with bicycles and the occasional horse-drawn cart loaded with produce from the countryside.

Yet Wuhu aims to be the car-export capital of China. Chery Automobile, only eight years old, has signed a deal with entrepreneur Malcolm Bricklin to ship cars to US dealerships starting in January 2007.

A tiny provincial automaker conquering the United States, the biggest market in the world?

It sounds quixotic, but Chery has a chance to realize its dream, though it may not be able to meet Bricklin's deadline. Why? Western-trained Chinese engineers are flocking to Wuhu, driven by patriotism and the chance to make history.

Chery is paying top-notch European and US suppliers and designers to build assembly lines, low-pollution engines and even to design new models for export. And perhaps most importantly, Beijing is bankrolling Chery's export efforts with bank loans and export credits.

''I think Chery's management has the authority and power to do what they say they want to do,'' says a North American supplier who is in discussions with Chery.

But while Chery has many strengths, pulling off the ambitious plan depends on strengthening its weakest link - mid-level management and workers in its own plants and those of its suppliers.

They must banish years of bad habits left over from decades of a planned economy that emphasized high volume, not high quality. And if the first models fail to meet picky US consumers' expectations, it could set Chery's export plans back years.

''We still have a big challenge,'' says a Chery manager with a decade of experience working in the US.

Chery has a short history of turning out cars. Founded in 1997, it endured rocky early years, nearly going bankrupt because it couldn't get a license to sell cars nationwide. Then, Chery got Shanghai Automotive Industry Corp to become a part owner in 2001, allowing it to piggyback on Shanghai Auto's license to sell cars nationally.

In 2004, Chery sold 86,567 cars. By comparison, Shanghai Volkswagen, China's largest carmaker, sold 353,649.

Chery founded a research and engineering institute in 2003 that now boasts 800 engineers. It has developed three- and four-cylinder engines on its own.

Intellectual property questions dog Chery nonetheless. General Motors charges that the QQ subcompact, Chery's best-selling model, is a copy of its Chevrolet Spark, also built in China. The case is pending.

The models it aims to export are all new designs, says the Chery manager. Bricklin said he will sell at least five different models in the United States beginning in January 2007.

A trio of Chery engineers with PhDs from US universities and more than 30 years' cumulative experience in the American auto industry are cautious about meeting Bricklin's 2007 deadline.

``We will play it by ear,'' says one over coffee in a Wuhu hotel.

Returning engineers are one of Chery's strengths. Some two dozen now work there and more are coming.

Chery started advertising for them in 2003 in the newsletter of the Association of North American Chinese Engineers. Nobody took the ad seriously at first, says one of the returnees. Now they do.

Industry people who have met Chery's president, Yin Tongyao, and other top management, sing their praises. ``Management overall is quite professional,'' says Paul Gao, a principal with McKinsey & Associates in Shanghai. ``They have a strong can-do mentality.'' Yin turned down repeated requests for an interview.

Chery has hired Italian design houses Bertone and Pininfarina to design new models for export, and Austria's AVL List and Britain's Ricardo to design engines that can meet US and European emissions and safety standards.

``The level of intent is absolutely clear,'' says an executive at one of the engine design firms. ``Chery has its sights set on export.''

Money isn't a problem. The firm is owned by the local government and favored by the national government. In March, Chery received a five billion yuan (HK$4.7 billion) export credit for overseas expansion from China's Export and Import Bank. It also received a US$290.2 million (HK$2.3 billion) loan for research and development from the China Development Bank.

Chery has purchased state-of-the-art production equipment for cars and engines, say visitors.

``The assembly line is all brand new,'' says a western supplier who has visited the facility. ``Manufacturing experts who have seen the plant say Chery must have spent US$1 billion on it.''

Chery suppliers also use imported equipment. A manager at a local engine parts maker proudly shows off his Fata Group machine tooling equipment from Italy.

``I'm pretty optimistic about Chery's future in terms of exports,'' says the supplier.

But his optimism fades as he examines the finish on his new Chery Oriental Son sedan.

``Look at this welding,'' he says, pointing to a rough spot inside the rear trunk. ``This really looks ugly.''

Attention to such detail - which can make the difference between success or failure - is where Chery slips up, says the manager, who worked in Europe for more than a decade.

He attributes the problem to the ``iron rice bowl'' mentality left over from the days when lifetime employment was guaranteed and quality was not a concern.

``It's not easy to change the thinking,'' he says. ``Just meeting customers' needs is not enough. Chery has to surpass their expectations.''

The three Chery engineers are frank about the obstacles Chery faces.

``One of our important missions is to develop our suppliers,'' says one.

For example, many critical powertrain components are still imported from Europe, he says. Chery needs to be able to buy the same quality parts in China to meet its low price goals.

Around Chery, Malcolm Bricklin's nickname is ``The Mouth.'' He boasts that he will introduce a stylish, high-quality new car to the US every quarter for three years, priced 30 percent below the lowest-priced competitor.

The engineers are wary of Bricklin's bravado. ``Maybe we will meet that deadline,'' says one. ``But we know what American customers will accept. Unless we are satisfied with the quality, we won't bring a model to the US.''

Alysha Webb is China correspondent of Detroit-based Automotive News


Copyright 2005, The Standard, Sing Tao Newspaper Group and Global China Group. All rights reserved. No content may be redistributed or republished, either electronically or in print, without express written consent of The Standard.



 

 




FRONT PAGE | BUSINESS | CHINA | METRO | FOREIGN | WEEKEND | OPINION | NOTICES
SUBSCRIPTIONS | ABOUT US |  CONTACT US | ADVERTISE | COPYRIGHT NOTICE

The Standard

Trademark and Copyright Notice: Copyright 2005, The Standard Newspaper, Ltd., and its related entities. All rights reserved.  Use in whole or part of this site's content is prohibited.   Use of this Web site assumes acceptance of the
Terms of Use and Privacy Policy.