China Car Industry's Export Ambitions

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But then again, it all comes down to how the system is implemented."

While Chinese carmakers appear to be able to generate headlines at will by reeling off US and European export targets, they are actually quite cautious planners. For the time being, the developing markets of the Middle East, Eastern Europe, Latin America, Africa and Southeast Asia will remain the primary focus, in addition to the domestic market.

Carmakers have already set up production and distribution centers in these regions and more are likely to follow.

"It's going to go in stages," said Michael Dunne, vice president for Asia-Pacific at auto consultancy JD Power & Associates. "Right now, it's almost exclusively to developing markets. We have not seen any penetration of developed markets like the US and Europe - the quality and reliability just isn't there yet. In four years time, the cars might be ready."

Of all the domestic manufacturers, Chery has drawn the most attention to its export plans. Initially, this was largely due to the involvement of Malcolm Bricklin, a man with a track record of bringing low-cost cars to the US, having introduced Subaru to American drivers in the 1960s and the Yugo, from what was then Yugoslavia, in the 1980s.

Bricklin's Visionary Vehicles was to provide the dealer network and Chery the vehicles themselves, with cars hitting the streets by early this year. There was talk of selling one million units per year in the US within six years.

However, joint venture talks broke down last November amid claims that Chery was dragging its feet as well as holding export negotiations with other automakers.

But according to Wendi Friedman Tush, a spokesperson for New York-based Visionary, there are darker reasons for the fall-out and these are likely to have legal consequences.

"It's not so much that Chery chose to do business with someone else as what they took from Malcolm in terms of designs and people," she said. "It will all come out in due course in the courts."

Chery declined to be interviewed for this article.

STILL LOOKING
Bricklin is still keen on sourcing cars from China but now his focus has switched to electric hybrid vehicles. The company has made contact with potential partners but intends to wait until the prototype is perfected before making any agreements.

"Malcolm always wanted to do an electric hybrid," said Tush. "This was going to be the sixth car we produced with Chery as they weren't ready to do it right away. Now we are free of Chery, Malcolm can move back to where his real interest lies."

"I suppose there is a silver lining to getting royally screwed."

She added that the business model will be structured so that Visionary owns the battery technology used in the cars, something the company has "learned it is part of doing business in China".

One of the prospective partners that Chery was talking to as the Bricklin deal went into meltdown was German-US manufacturer DaimlerChrysler. This resulted in a landmark deal, signed at the end of last year, that will see Chery build compact cars for sale in the US and Europe under Chrysler's Dodge brand.

Production of the vehicles, which will be the first wholly Chinese-made cars to be exported to the US, is expected to start no earlier than 2008. They will have to compete with compact cars built by the likes of Chevrolet, Honda and Toyota.

WAL-MART PHENOMENON
The deal is seen in some quarters as the "Wal-Mart-ization" of the auto industry, the first step in what will become an exodus of car companies from the West as they pursue lower-cost options in Asia, following a pattern that has become familiar in manufacturing as a whole.

"We are already seeing a lot of production shifting to Asia - they are building better cars at lower cost," said Dunne.

"DaimlerChrysler has never developed a competitive small car and this has hurt its business in China and in the US. Chery said, ‘We are your solution.' We will see more initiatives like this, just as we have seen in other industries."

Others are more skeptical, though.

Citigroup's Cheung points to the small size of the deal, suggesting that it will be difficult for either party to turn a profit. There are also unsubstantiated rumors that Chrysler's primary motive was to up the stakes in its dispute with United Auto Workers, the US trade union. By doing business with Chery, Chrysler was effectively telling its workers: accept lower wages or we'll pack up and go to China.

"This arrangement might suit Chery but it wouldn't suit us," was the verdict of Geely's Ang. "If a car company phoned up tomorrow and said they wanted to do a joint venture, I would go right over.

"But one of the major difficulties is that we must use our own brand whereas most foreign car companies just want to utilize our manufacturing capacity."