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GM's Chinese Nightmare

Written by Brian Hicks
Posted January 17, 2006

The earth did not shake, but the deer and other animals raised their heads simultaneously, sensing something amiss. Later, the ground rocked with all the tectonic fury that had been stored up, and afterwards only the animals, with their natural instincts, were left.

I'm talking here about the ability of some mammals to anticipate an earthquake, because I got the same feeling watching the Detroit auto show recently.

The concourse was packed when Chinese businessman Shifu Li debuted the Geely (pronounced JEE-lee) 7151 CK sedan, a Chinese-made car that is expected to have a sticker price around 10,000 USD when it hits showrooms and lots in
2008.

This is the future.

It doesn't take a sixth sense to know that such a development in the stateside auto market will move mountains.

We have witnessed the utilization of cheap Chinese labor to create low-cost stateside products for years now, with much of the argument for that outsourcing hinging on the savings passed down to John and Jane Q. Public. Should that model now be extended to the car industry, while GM is in a tail spin and Toyota is edging in on the Big Three for market share?

It seems that just as an earthquake is inevitable from time to time, the market forces that have been set in motion will be impossible to stop.

Import Impresarios

Geely currently exports cars to several overseas markets, spanning Africa, the Middle East, Central and South America, and now it has its sights set on US shores. But the jump from developing countries to the birthplace of the Model T will not be easy. US drivers demand quality, a basic level of entertainment and comfort, and the knowledge that the car they buy can be ably serviced by most skilled repairmen should something go wrong.

Auto imports to the United States have had an interesting history. As the first Toyotas and Volkswagens entered the market in the late 1960s, proud Yankee workers and drivers were hesitant to admit through their purchases that a foreign-made product could even match Detroit quality.

Nevertheless, efficiency and the gas shocks of the 1970s trumped vehicular xenophobia as the value became apparent.

One of the pioneers of the importation boom was Malcolm Bricklin, whose Visionary Vehicles brought both Subaru and the notorious Yugo to the States.

Now, Bricklin has set 2007 as the year for Chery, a state-run Chinese auto manufacturer he is ushering along, to begin selling its models in the US.

Chery does not promise as low a sticker price as Geely, but it also promises more for what it will cost. Chery vehicles will, by Bricklin's account, cater to a more sophisticated consumer who demands leather seats, higher performance, and other amenities but who needs a more affordable alternative to existing models.

Of Cherys and Lemons

At this point, "Chinese-made" does not carry a ring of superb quality. Bricklin's Subarus and Yugos had wildly different experiences with word-of-mouth information once they debuted in the US. The Yugo was named "Worst Car of the Century" by NPR's Car Talk. Subarus, on the other hand, have earned an air of dependability and safety with All-Wheel Drive technology and family-friendly prices that do not plumb the depths.

Bricklin and Chery hope to sell 250,000 units in the United States in the first year of availability, through 250 dealerships around the country. However, you will not see the Chery name on any of them, as GM has threatened to sue unless the company differentiates its name further from Chevy.

GM and Chery also have bad blood because of a piracy claim that Chery knocked off a mini model Daewoo, GM's South Korean affiliate.

All Chinese automakers know that these first models affect their collective lot significantly. If the Chery, by whatever name, does not find favor, Geely, Dongfeng, and others will face a distinctly uphill climb to establish themselves.

This is why Chery aims first to test European and Puerto Rican consumers, who are generally more tolerant of quality problems in low-cost models. The Yugo proved that even though Americans know "you get what you pay for," they still want a car that will not blow off a bridge in high winds (yes, that actually happened to a Yugo in Michigan).

Bricklin and Li are each very smart entrepreneurs who understand what is at stake for a new level of low-cost Chinese imports. We will monitor their progress all the way to the showroom floor.

- Sam Hopkins


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