Chinese Carmakers Eye America

Companies like Changfeng won't risk rushing into the U.S. market. But tiny ZX and its distributor CHAMCO could be selling cars in Detroit by '09

by Timothy Dunne

Most of the world's leading automakers showed up in Detroit in January for the 101st annual North American International Auto Show. The Detroit show is the preeminent automotive exhibition in the U.S., attracting scores of automakers, dozens of new model introductions, hundreds of automotive executives, thousands of media representatives (some 7,000 television, radio, and print journalists registered for this year's show), and hundreds of thousands of visitors.

One of the biggest stories at this year's show was the appearance of four Chinese automakers. BYD Auto of Shaanxi, Changfeng Motor of Hunan, Geely Automobile Holdings of Zhejiang, and Zhongxing Automobile of Hebei (through its North American distributor, China American Cooperative Automotive Co., known as CHAMCO Auto) showed their vehicles and captured top-draw attention even though their exhibit was outside the main hall.

J.D. Power & Associates MHP met with Chinese automotive executives in Detroit and China, and I can report that it seems almost certain that Chinese vehicles won't land on U.S. shores in 2008. For starters, most automakers say there is still work to be done on engineering Chinese vehicles to meet U.S. regulatory specifications for safety and exhaust emissions. They also need improvement in terms of fit and finish and overall engineering refinement. On top of that, an even larger task involves developing a distribution and dealership network in the U.S., a monumental undertaking when starting from scratch with an unknown brand.

Testing Consumers' Reaction

Moreover, it seems that Chinese automakers are wary of entering the U.S. market too early. The Chinese are well versed in the history of the stuttering starts that many of their Japanese and Korean counterparts experienced upon first entering the market.

As a result most Chinese vehicle makers say their presence in Detroit is only a way to test the reaction of consumers and to get a first-hand look at how they stack up against the competition. Many admit they are years away from committing to the U.S. and will first look for growth close to home. Subsequent entry and expansion plans are likely to target emerging markets such as Africa, South America, and Eastern Europe, where the regulatory environment is less strict, the lack of brand recognition is less important, and a low-price product strategy can quickly create a new market niche.

One company exhibiting in Detroit, however, says that it is working hard to become the first to enter the U.S. market. The name is not the one that's been featured regularly in the stories about the coming China juggernaut. It is Parsippany (N.J.)- based CHAMCO Auto, a relatively small player with very large plans.

CHAMCO's Export Plans

I met with CHAMCO Founder and Chairman William Pollack at his company's exhibit in Detroit where he talked about his goal to start importing small sport-utility vehicles and small pickups from Zhongxing Auto (also known as ZX Auto) to the U.S. in early 2009. ZX Auto is a relatively small player in its home market in China, with local sales only reaching about 10,000 units in 2007, according to official government figures. But Pollack says that's not the whole story since the company also exported another 40,000 vehicles to some 56 countries around the world over the past two years.

CHAMCO told J.D. Power that it established a research and development facility in Southern California last year to enable ZX to meet strict U.S. vehicle certification standards, and also sent a team of engineers to assist with vehicle and supplier development in the Middle Kingdom. The company hopes to receive U.S. government approval for its vehicles by the middle of 2008.

In addition to its U.S. ambitions, CHAMCO says it has an exclusive agreement with ZX Auto to import and distribute its vehicles for all of North America (including Mexico and Canada). The company expects to receive approval from the Mexican government to start exporting there by the end of the first quarter this year and could have vehicles in place, through a network of two dozen signed dealers, by the middle of 2008. By yearend, CHAMCO plans to turn its attention northward.

A Wal-Mart for Chinese Vehicles?

CHAMCO Auto, only two years old, says it has already signed up 75 dealers in the United States and plans to double that number by the end of 2008. Pollack wants to limit the number of dealers in order to provide dealers with large sales territories and keep their sales volumes healthy.

Another wrinkle to the CHAMCO Auto business model is that while the company has an exclusive agreement to sell ZX Auto vehicles in North America, it intends to add other Chinese brands to its portfolio. The company says it is discussing import and distribution agreements with several other Chinese automakers, and if its plan falls into place, its dealers will sell all their vehicles under the CHAMCO Auto umbrella. It's an intriguing idea: Think of it as a startup Wal-Mart (WMT) for Chinese vehicles.

While much needs to fall into place for CHAMCO Auto to bring Chinese vehicles the U.S., the company appears to be further along than any of its competitors. And it is the only company staking its reputation by declaring a date for doing so, and sooner rather than later.