Is America Ready for Cheap Chinese Cars?

Chinese-made autos are coming to the U.S., but recent quality concerns could make buyers choose safe cars over cheap ones

by David Kiley

Chrysler announced on July 5 that it will sell a small, inexpensive car built by Chinese automaker Chery Automobile in South and Central America as early as next year and in the U.S. by 2009. The car is expected to cost about $10,000. But shortly after the Chinese government approved the deal between the two companies, Chery's president contradicted Chrysler, saying the car would sell for about $7,000 and go on sale in the U.S. by next year. Such is life in the Chinese auto industry.

There is no question that Chinese automakers are going to be part of the U.S. auto scene. The question is when, and to what degree American consumers will accept cars made in China.

A recent spate of recalls and tainted products from China has dealt a serious setback to the image of goods made in China, according to some analysts. Tainted pet food, fake pharmaceuticals, and substandard tires have all made headlines in the U.S. And China's own General Administration of Quality Supervision just reported that 19.1% of the products China manufactured for domestic consumption in the first half of 2007 were found to be substandard. "We can't turn the clock back on importing goods from China, but if the negative headlines persist, it will make it tough for every Chinese brand, and that especially goes for cars," says independent marketing consultant Dennis Keene.

Some in the business of importing Chinese-made and Chinese-branded goods into the U.S. don't disagree. "No question what we are seeing now in the almost weekly headlines is going to make consumer acceptance tougher," says Malcolm Bricklin, founder of Visionary Vehicles. Bricklin is best known for co-founding Subaru of America and importing Yugos to the U.S. He has had a deal with Chery to bring the carmaker's vehicles to the U.S. But that deal is in tatters and the two sides are litigating.

Already on the Road in Europe

Meantime, Bricklin is looking for a new Chinese partner to supply Chinese-built hybrid vehicles to his company for sale in the U.S. "That seems like the best market opportunity right now," says Bricklin, who calls doing business with the Chinese automakers "a fascinating but sometimes frustrating experience" (see BusinessWeek.com, 4/12/07, "Bricklin Is Back—with a Plug-In").

Even before Chery has a chance to sell cars through Chrysler, Scottsdale (Ariz.) distributor China Motor is expected to showcase its plans in Detroit this month to sell vehicles built by Chinese automaker Brilliance China Automotive (CBA) as early as the fall of 2008. The company has been certifying Brilliance vehicles in suburban Detroit for U.S. safety and emission standards. China Motor chief David Shelburg says the company has been "flying under the radar," but is about to make its plans clear.

Last May, Shelburg's company made a presentation to dealers and members of the media in New York, and made an impression. "They really had their act together and look readier than anyone from China to start up in America," says Peter DeLorenzo, editor of Autoextremist.com, who attended the conference put on by auto dealer advisory and financing firm BelAir Partners. Brilliance has already launched its cars in Europe.

Korea Is Making Strides in Quality

China Motor is expected to launch with a sedan priced around $20,000. That price, though, could be too high to gain consumer acceptance. TNS Automotive of Marlborough, Mass., recently surveyed 2,500 American consumers on attitudes about Chinese cars and what points should be emphasized in marketing. According to the survey, one approach that stands out as a no-no is emphasizing anything about Chinese heritage or origin. Fifty-four percent said "do not emphasize" Chinese heritage, while 29% said "emphasize only a little."