Chinese Automakers Sharpen Export Plans at Shanghai Show
April 30, 2007

By Mark Bursa

Will history judge that the 2007 Shanghai Auto Show was the tipping point for the Chinese car industry?

Did the vast array of new models on display signal the moment when the Chinese automakers stuck their red flag in the ground and said, "Here we are –- take us seriously"? Or were we just looking at another load of rip-off designs that won’t meet global safety or environmental standards, with silly Chinese names?

The truth is somewhere in the middle. But one thing’s for sure. The Shanghai auto show is now a premier event on the global auto industry calendar. The fact that BMW, General Motors and Audi all chose the event to unveil significant concept cars gives ample evidence that global carmakers are taking the show very seriously indeed.

Numbers Too Big To Ignore

So they should -– the Chinese numbers stack up. Last year, passenger car sales grew by 25 percent to 3.8 million, making China the second-largest auto consumer in the world -- and the third-largest producer.

And while the foreign joint ventures are booming, the domestic Chinese brands are leading the growth. In 2006, sales of national brands accounted for 26 percent of total sales in China, up 6 percent on 2005, according to CCID Consulting, a Hong Kong-based research and analysis consultancy.

As the Chinese domestics grow in confidence, so do their ambitions. Most have exports on the agenda. Indeed, many already export to emerging markets such as Africa, the Middle East and Russia. In fact, China's vehicle exports surged nearly 60 percent in the first quarter this year to 99,800 units, according to the China Association of Automobile Manufacturers this week. The expansion continued from last year when exports for all of 2006 doubled to 342,400 units from the year earlier and generated the equivalent of $3.1 billion (U.S.), up 96.6 percent from 2005.

Now North America and Europe are increasingly in the Chinese automakers’ gunsights.

Malcolm Bricklin may have crashed and burned with his overambitious plan to bring Chery to the U.S., but there is no shortage of "Bricklins" ready to take a chance on selling Chinese cars Stateside. And judging from what was on show in Shanghai, no shortage of half-decent product.

But here’s the problem. How do you launch a Chinese brand into a tough, competitive marketplace like the U.S. and make money? You could try undercutting the cheapest brands like Kia –- but you’d struggle to make a profit. Sure, Chinese manufacturing costs are lower, but you’d have to spend to build up the brand, canceling your advantage.

And of course, the brands are a real problem. Up to 18 Chinese brands are looking at global exports, and U.S. consumers suddenly faced with a confusing array of similar-looking Jianghuais, Hafeis, ChangAns, Changfengs and Zhongxings are likely to balk. And while consumers were prepared to buy untried Toyotas and Datsuns back in the 1970s, the car-buying public is more sophisticated these days. What does a Chinese-brand car say about you? It’s hardly aspirational.

There is a way forward –- and that’s to enter the market as specialist niche players, undercutting high-margin, high-priced vehicles such as SUVs. The most likely Chinese exporters are focusing on pickups and SUVs, or luxury sedans. They’re playing in sectors where there is still enough margin to make a profit, even if you undercut the existing players.

Likely Firsts for Export

So which Chinese brands will be the first to hit U.S. showrooms? Two specialist SUV makers have already declared their intention. Changfeng made headlines at the Detroit auto show in January, but its plans are vague and the SUVs and pickups that it showed –- like the Liebao CS6, a rebodied Mitsubishi Pajero with a 2.5-liter, four-cylinder diesel -- looked crude and dated.

Changfeng will to be beaten to market by another SUV maker, Heibei Zhongxing Automobile –- or ZX Auto, as its U.S. distributor Chamco Auto has sensibly renamed it. ZX has been recruiting U.S. dealers at private events for the past year, and even showed the cars at February’s National Automobile Dealers Association dealer convention in Las Vegas.

Chamco says a two-model range will be on sale in America before mid-2008: a pickup called the Grand Tiger and an SUV called the Landmark. Chamco chairman Bill Pollack said they would both retail for $13,250 –- around 80 percent of the price of established rivals’ equivalents. A sedan and a crossover are planned for 2009, though pickups are expected to account for 90 percent of U.S. sales.

A third SUV maker, Great Wall, is already selling its Hover SUV pickup in Europe, and the Wingle pickup will follow this year. These trucks are undoubtedly the best-looking Chinese vehicles to date, though Great Wall’s first offerings in the car sector are rather blatant copies of foreign designs: the Gwperi hatch is a dead ringer for the Fiat Panda; the boxy Coolbear is a Scion xB rip-off and the Florid is part Toyota Yaris, part Suzuki Swift. It looks like exports will concentrate on trucks, and Great Wall’s no-show at Detroit in January suggests America is behind Europe in terms of priority.

The same goes for Brilliance Jinbei, which launched into Europe at the Geneva show in March, displaying a three-model range of two sedans and a coupe. To these were added a smart five-door hatchback called FRV at Shanghai. Brilliance is going about things the right way -– it has hired European engineering and design firms to develop its cars –- Giugiaro and Pininfarina have styled the models, while Porsche has helped with the engineering.

European sales have already started and the warm reception the cars received at Geneva appears to have accelerated plans to launch in North America. Now Brilliance says U.S. sales could start as early as next year, with the BS6 large sedan as the spearhead. Brilliance has a good chance of success -– it’s BMW’s Chinese assembler, so has experience of building quality luxury cars.

Both the Chinese firms that benefited from the demise of MG Rover, Shanghai Automotive (SAIC) and Nanjing Automobile -- made a splash at the show. SAIC had the more impressive model, a midsize sedan concept called W2. This was one of the best-looking models on display, with more than a hint of Lexus IS in its looks.

SAIC has plenty of industrial clout, though its hokey "Roewe" brand is unusable as an export nameplate -– Ford’s lawyers are already on code amber. What SAIC could do with is the classy British MG brand owned by its rival Nanjing Automobile.

Both companies showed similar derivatives of the old Rover 75 sedan amid rumors the two companies would end their differences and cooperate. Indeed, SAIC's chairman Hu Maoyan actively courted Nanjing at the show: “We are looking forward to cooperation with Nanjing,” Hu told the Financial Times. “We need to use state assets more efficiently and effectively. We believe the leaders of Nanjing Auto are smart enough to understand this principle.”

So, a show of progress, if not quite the global credibility breakthrough that the Chinese auto industry is seeking. Issues of design piracy, suspect build quality and lame Chinese branding will still cause problems. But that won’t stop the Chinese from beginning their export drive. Expect the first wave next year, at a showroom near you.

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