), Volkswagen, and Toyota (TM
) at the Frankfurt auto show, presenting a concept car called the China Dragon and four other models -- more than any other Chinese brand.
On Jan. 14 visitors to Detroit's COBO Exhibition Center will also get a look at Geely's cars. And it surely won't be the last Americans will hear of the company. "We are planning to enter the U.S. and European markets," says Chairman Li Shufu, a 42-year-old former rice farmer. "We will accomplish this one step at a time," he adds, although he declines to give a specific timeframe.
Geely is stepping pretty quickly these days. Originally founded as a maker of refrigerator parts, the company started manufacturing motorcycles in 1994 and in 1998 made its first car, the 1.0-liter Haoqing. Then, two years ago, Geely -- the moniker is an Anglicization of its Chinese name, Ji Li, which means "luck" -- secured a stock listing in Hong Kong and hit the accelerator. Today the company produces 10 models, ranging in price from $3,700 to $17,000. At the bottom there's the stalwart Haoqing, and at the high end Geely makes the Beauty Leopard, a low-slung roadster that starts at $9,850. Revenues at the parent company, Geely Holdings, more than doubled last year, to $304 million, and are on track to reach $516 million this year, with profits of more than $25 million. Though Geely's stock price has swooned of late, so has the rest of the Chinese auto sector as investors fret about overcapacity.
Geely itself has thrived by focusing on the low end of the market. The average Geely buyer is a first-time car owner under 35 earning just $12,000 per year, so price is paramount. "There is a whole new consumer class hitting the threshold for automobile affordability, and Geely is well positioned to tap that," says John C. Humphrey, managing director for China at market watcher J.D. Power Asia Pacific.AUTOMATING PLANTS
Now Geely thinks it can repeat that success with more expensive cars. In June the carmaker announced plans to develop of a 3.0-liter luxury sedan, which it hopes to start producing within two years. Li says he'd like to add two or three new models annually for the next several years.
To do that, Li hopes to expand Geely's manufacturing footprint across the mainland. The company already has four factories in eastern China, where men in blue smocks build cars largely by hand, using forklifts and even pushcarts to move auto frames along the assembly line. Next year, Geely plans to add two more automated plants, one in southwestern Hunan Province and another in the far western province of Gansu. Li expects the two to nearly double Geely's capacity, churning out some 200,000 Free Cruiser and LG-1 sedans and 1.8-liter FC-1s every year.
Li also hopes to add a third new plant somewhere in northeastern China to get his products closer to that market. Both efforts fit with Geely's strategy of building expertise in rural areas and less developed cities before slugging it out in more competitive markets such as Beijing. "Geely's strategy is similar to Mao's," says Tim Dunne, a partner at consultancy Automotive Resources Asia Ltd. "First go to the countryside and only later conquer the [big] cities."
The real target, though, is exports. Geely already ships the Haoqing and other key models to 30 countries -- mostly in the Middle East and Latin America -- and is on pace to double overseas sales this year, to 10,000 vehicles. In May, Geely signed a five-year agreement to produce 30,000 Free Cruisers in Malaysia and ship them throughout Southeast Asia, although it's unclear whether Geely will be able to sell them in Malaysia itself, since a November ruling by the country's Commerce Ministry bars it from doing so. Nonetheless, by 2010, Li hopes to make some 750,000 cars annually and export half of them. "Our biggest competitors going forward are South Korean and Japanese auto makers," Li says.
To succeed in that race, Geely will have to make better cars. Today it has a reputation for relatively shoddy quality. "Geely needs to produce well designed products," says Yale Zhang, a forecaster with auto consultancy CSM Worldwide. "So far this is not happening." Li says he can fix those problems with a new research and development center in the coastal city of Taizhou. Since it opened in February the center has grown to some 400 researchers, including Shim Bong Sup, a former top executive from Daewoo International Corp. who now advises Geely on its research efforts. Geely puts 6.2% of sales into R&D, well above the industry average of roughly 5%. "We are making simple cars now but will gradually develop higher quality," Li explains. "The whole world knows that quality and good R&D are what make a company competitive."
Geely will have to be hypercompetitive to get ahead even in its home market. Auto makers in the mainland can now produce as many as 2 million more cars annually than consumers are likely to buy, and most have ambitious plans for expansion -- especially at the bottom of the market, where Geely is strongest. Sales at Chery, maker of the popular $4,900 QQ subcompact, have more than tripled this year. And Tianjin Xiali, which has a joint venture with Toyota, has seen its sales jump by 41%. GM has launched four new Chevrolet models since February, including the $8,600 Sail subcompact and the $10,000 Aveo hatchback. Chevy "will become the biggest brand for GM in China," says Dale Sullivan, Chevrolet brand director at Shanghai GM. He says global carmakers such as GM are "raising the bar" for domestic rivals like Geely. "If the local players don't improve, Chinese consumers will stop buying their brands."
With no brand recognition or distribution overseas, Geely's export goals may also be a tad ambitious. For evidence, look no further than the Yugo. The ultrabasic car from Yugoslavia sold well when it was introduced in the U.S. in 1985. But in spite of its superlow price, it quickly became the butt of jokes, owing to its poor quality. Still, there's little doubt that Chinese auto makers are on the rise, and Geely is definitely one to watch. By Dexter Roberts