Chinaâs Chery and Chrysler: âConceptualizingâ Small Car Options
By Michelle Krebs November 15, 2007China’s Chery and Chrysler are in the “conceptualization†phase, considering options for a small car to
be built by the Chinese automaker and sold by Chrysler in North America and Europe.
But no timetable is set for the debut of the car, which was originally to go on sale in the first quarter of 2008.
Zhang Lin, general manager of Chery International, said at a China automotive conference sponsored by J.D. Power and Associates in Detroit the “conceptualization†phase could take a couple of years as the companies consider various options.
Zhang, who got his doctorate in engineering from the University of Michigan and worked for Chrysler in manufacturing engineering from 1995 to 2003 before joining Chery, said the two companies would use a current Chery platform for a small car and apply a “top hat†–- or “top hats†for specific markets.
But more than the timetable seems out of kilter.
Circumstances -– and Players –- Have Changed
The deal between the two companies was negotiated when Chrysler was part of DaimlerChrysler. In fact, DaimlerChrysler executives announced their intent to partner with Chery long before they announced they were putting Chrysler on the auction block.
Only late last year, Chrysler and Chery executives were saying Chery’s A1 hatchback would be sold by Chrysler in early 2008 as the first Chinese made car to be sold in America, and possibly the cheapest. The car was to be branded a Dodge and arrive in Latin America and possibly Eastern Europe by year-end 2008. Chrysler said it expected to sell as many as 100,000 Chery-built vehicles a year around the globe.
The schedule, at least, is obviously out the window. It’s not clear when a Chrysler-Chery might be introduced.
Still, despite the sale of 80 percent of Chrysler to private equity firm Cerberus Capital Management, Chrysler and Chery signed a memo of understanding to proceed with vehicle development on July 4, about a month before Cerberus took charge.
Yet, in the past couple of months, at least two top-ranking Chrysler executives have said Chery’s platform will not work. Zhang’s remarks suggest the two have returned to the drawing board.
Another monkey wrench in the partnership was Chrysler’s hiring of Phil Murtaugh to take over Chrysler’s
Asia operations. The former General Motors executive had built GMâs Chinese operations and later left for a spot with GMâs Chinese partner, SAIC (formerly Shanghai Automotive Industries Corp.).
As one well-informed source in China put it, any deals negotiated by Chrysler in China are subject to change with Murtaugh now in charge.
In fact, Murtaugh, in an interview during the Tokyo auto show in October, told AutoObserver Chrysler continues to shop for partners in China. He didn’t rule out partnering with SAIC. He hesitated in discussing details about the joint venture. He said it was going forward, but hinted at a revision of the timeframe, saying, “even Toyota takes four years to develop a car.â€
Growing Where the Growth Is
While Chery works on its partnership with Chrysler, it will focus on increasing sales in emerging markets, especially those in which Chery already is established, said Zhang who is responsible for Chery’s international sales, marketing and operations.
Chery is a baby in the auto industry, having been established in 1997, breaking ground for its manufacturing operations in Wuhu in eastern China only months later and producing its first car in 1999.
In August Chery produced its 1 millionth vehicle. Sales in 2007 are expected to be 400,000 worldwide, making it China’s fourth-largest manufacturer -– largest independent one -- with more than 7 percent market share. Chery’s line has 10 models, with two to four new ones upcoming.
Chery sells vehicles in 50 different countries, with assembly operations of varying degrees in a half-dozen countries. Its largest markets are the high-growth ones of Eastern Europe and Iran followed by the Middle East and Africa, which is where Chery will focus its short-term efforts.
Indeed, Michael Dunne, managing director of J. D. Power's China operations, said in his presentation at the conference that Chery is well-positioned for growth. Already, he said, Chery is not only No. 1 among independent Chinese brands but is also one of China's top automotive exporters, selling 100,000 vehicles outside of China this year alone. He forecasts Chery sales will rise from 2007's 418,922 to 654,681 in 2010.
He also noted Chery has strong leadership, led by Yin Tongyaho, a talented engineer who worked 10 years in the FAW-VW joint venture before being tapped by China's government to establish Chery.
Not Ready for a U.S. Solo Run
Meanwhile, selling Chery-branded cars in the U.S., as was the plan in a deal with entrepreneur Malcolm Bricklin, is on the back burner.
"No question, the U.S. is the most competitive market and most demanding market in the world," Zhang said. "The key is to continually assess our products and capabilities...until we feel we're ready."
He also noted that exchange rates would play a role in Chery’s decision to enter the U.S.
Of the partnership with Bricklin, Zhang would only say that both sides learned a lot.
Likely Chrysler and Chery are learning a lot as well.
Photos
1 - Dr. Zhang Lin (from J. D. Power)
2 - Phil Murtaugh (from Chrysler)
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