So far all the news from China has been about the big investments being made there to build cars and trucks to meet the demands of its huge potential market. Carmakers and suppliers from all the major economies are plunging in to make sure they have plants and facilities to build vehicles for China’s population of more than one billion. Risks are high, they say, but so are the potential rewards. This story from China is different. It’s about the first dedicated effort to create in China a source of cars to compete in the West, writes Karl Ludvigsen.
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This has always been seen as a possibility, but only well down the road after domestic demand began to be satisfied. Suddenly, it’s not far down the road at all. January 2007 will see the launch in America of a completely new range of cars from a Chinese maker through a network of 250 dealers in stand-alone stores who will each have invested more than a million dollars in their franchises. And the Chinese products will sell for a stunning 30 percent less than their competitors.
This is the spectacular joint vision of China’s Chery Automobile Company and an importer based in New York, aptly named Visionary Vehicles. Although only founded in 1997, Chery is already making waves as one of the ‘young tigers’ in China’s young industry. Know-how came in at the top in the person of Yin Tongyao, formerly a senior engineer at the FAW-Volkswagen joint venture and now Chery’s president. Backing is by Anhui Province, which funded the company’s founding in an economy and technology development zone at Wuhu, 200 miles inland from Shanghai, through its investment companies.
From its standing start only seven years ago, without the help of a western automotive partner, Chery has raced its production to 100,000 vehicles a year. One-tenth are sold abroad in Egypt, Bangladesh and Cuba among a dozen of its markets, making Chery China’s biggest auto exporter. Its comprehensive production facilities include a stamping plant, engine and transmission plant, body and welding plant, a modern paint facility and a spacious assembly operation that one observer has called ‘a state-of-the-art two-billion-dollar manufacturing campus’. That Chery cares about quality is shown by its adherence to international standards with ISO/9001 certification in 2001 and ISO/TS16949 certification in 2002.
Without an international partner to deliver ready-made designs, Chery had to scramble to put a product line together – and this has already landed it in hot water. Chery says that one of its initiatives was to buy the rights to Daewoo’s Matiz small-car design when that troubled company was in bankruptcy. Now that GM has taken over Daewoo, and is selling the Matiz as the Chevrolet Spark, it’s complaining in court that Chery’s QQ is a knock-off of the Matiz design. Chery has won the first round but GM still seems determined to seek redress.
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By GlobalDataThat’s the bad news. The good news is that the cars to be sold in America will be completely new, nothing to do with existing Chery products. Knowing that it needed outside help to create a modern auto range, the company has already engaged the help of Italian stylists Bertone and Pininfarina to pen its new models. In Austria, the renowned firm of AVL is at work on a new engine family of 2-litre fours, 3-litre V6s, 4-litre V8s and turbo-diesels. It commissioned Britain’s Ricardo to develop a hybrid power train. Thanks to Chery’s interest in low-emissions power trains, the Beijing government will support its efforts with funding and technical support. The final designs will come together at Chery’s new multi-story R&D facility at Wuhu.
At the heart of the Chery proposition is its complete freedom of action. Where Japanese and Western auto producers have formed partnerships in China, those links include constraints on exports. The foreign partners have learned from bitter experience that they don’t want to meet cheap competition in their home markets from the products of their Chinese plants. Chery faces no such constraints. In fact, as a latecomer to its home market, where it’s a minnow with a 4-percent share, Chery wants to emphasise expansion abroad. By 2007 it plans to be able to ship a quarter of a million cars to America.
Waiting eagerly to receive the Chery range – which will include two sizes of saloons, a crossover saloon, a sport-utility and a sports-luxury coupe – is one of the most charismatic and controversial entrepreneurs ever to enter the automobile business. Fast-talking Malcolm Bricklin, now 65, heads privately held Visionary Vehicles, the company that will set up Chery’s American importation. This is the same Malcolm Bricklin who founded Subaru’s American import company, lost $20 million of his own money trying to build his eponymous sports car in Canada, and went from hero to zero when his low-cost Yugo – greeted with wild enthusiasm – imploded on the American market.
Since then, Bricklin has been combing the globe in search of another make to import. ‘I thought it would be great to find a car company that could build vehicles that had great style, ride, price and service,’ Bricklin said. The Yugo’s failure was a direct result of its maker Zastava’s refusal to meet the quality standards that export markets demanded, in spite of Bricklin’s best efforts to get them to see the light. When one quality-control expert delivered his scathing report, Zastava’s reaction was to bar him from the factory. ‘Every business I’ve been in has been successful, if the factory did its job,’ Bricklin reflected. ‘This factory can do the job,’ he added of Chery.
Malcolm and his VV team scoured the world in search of a new source of imports. They’ve been to MG Rover in Britain, Tata in India and automakers in Eastern Europe. For a while hopes were high for a revival of Zastava, but this never took wings – fortunately, in my view. ‘What I was really looking for,’ said Bricklin about his quest, ‘was a factory to build my cars. And I found a factory that was about as impressive as any I’d ever seen.’
The first meetings in Wuhu took place in April of last year. Talks followed both with Chery and with officials of Anhui province, the company’s owners. By December agreement had been reached and Bricklin travelled to Wuhu on the 11th. On the 16th he and president Yin signed the contract covering their business relationship. ‘I have great confidence that they are going to be as innovative and productive as any automobile company in the world,’ Bricklin said of Chery. ‘They’re ambitious like crazy. They want to be a major global player.’
Under the agreement Bricklin’s VV team has significant responsibilities, including product planning, engineering of safety and emissions systems for the US market and homologation of the cars – not to mention signing up the 250 dealers with which VV plans to launch Chery’s products – under a new brand name – two years from now. To meet his commitments Bricklin has assembled a team that includes some of his colleagues from the Yugo days, such as Paul Lambert in marketing and Tony Ciminera in product development. A newcomer is manufacturing consultant Ron Harbour, whose company – famed in the industry for its studies of factory efficiency – will advise Chery on improving quality and output. The import company will have offices in New York and New Jersey and a technical centre in Detroit.
Malcolm Bricklin has never had difficulty in assembling a blue-ribbon team of backers and advisors. After all, it was international businessman Armand Hammer who raised the Yugo opportunity and Henry Kissinger whose consultancy supported his efforts. Advisors of like calibre have signed on for the Chery adventure, which offers the huge potential of cars of quality sold in America at almost one-third less than the opposition. One such is William vanden Heuvel, senior adviser to investment bankers Allen & Co. and a former director of Time Warner Inc. ‘I was taken by his personality and his vision,’ he said of Bricklin. ‘To be the first importer of Chinese cars will be a huge achievement. I think Malcolm is a master salesman who got everyone to understand the dimensions of his vision.’ Vanden Heuvel is chairman of the Visionary Vehicles management board.
Not everyone is cheering for Bricklin’s new initiative. ‘I wouldn’t trust him as far as I could throw him,’ said Ron Tonkin, an Oregon auto dealer who was out of pocket to the tune of six figures after the collapse of a Bricklin venture to sell electric bicycles through auto dealers. In fact this aborted venture saw Bricklin fleeced as well when a master wheeler-dealer, Lee Iacocca, came on board and snaffled up the electric-bike idea to promote it for his own advantage.
Bricklin’s team how has until mid-year to raise the $200 million that it needs for its end of the deal with Chery. Seeing the potential of what Malcolm likes to call ‘the next Toyota’, outside backers are swarming around like bees to the honeypot. Bricklin, on the other hand, may wish to maintain control of what promises to be the best deal he’s ever negotiated. The next few months will determine whether he’s able to do that.
This is by any standard an awesome initiative, one that has major implications for the industry in all parts of the world. With VV’s assistance, Chery plans to offer cars of quality, with a warranty of 10-years/100,000 miles, that will compete with the mainstream offerings of major auto producers at a price 30 percent lower. No spelling out is needed for the implications of such an offer not only for the export markets of the Japanese and Europeans but also for their home-market prospects. In five years from 2007 the partnership expects to be selling a million cars in America. After that, exports elsewhere will be on the agenda.
Thanks to his rocky experiences as an importer, Bricklin is realistic about his prospects. ‘If we don’t make sure these cars are among the best in the world,’ he told the Detroit News, ‘we’re going to get our ass handed to us. But if we do what we’re supposed to do, this could be the deal that changes the industry.’ Malcolm is a promoter par excellence, an artist at seizing the deal. If he can back this up with a strong team at VV and maintain good relations with Chery, I think he’ll pull off the deal of a lifetime. Not bad for a guy who should by rights be in the pipe-and-slippers category.
– Karl Ludvigsen
Karl Ludvigsen is an award-winning author, historian and consultant who has worked in senior positions for GM, Fiat and Ford. In the 1980s and 1990s he ran the London-based motor-industry management consultancy, Ludvigsen Associates. He is currently an independent consultant and the author of more than three dozen books about cars and the motor industry, including Creating the Customer-Driven Car Company.
