Chinese Brands Not Ready for America Yet

January 12, 2008
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No less than five different Chinese automakers are making an appearance at the 2008 Detroit auto show this week, but according to analysts from PriceWaterhouseCoopers, don’t expect any of those brands to appear alongside the likes of Chevrolet, Ford or Toyota anytime soon.

Kenneth DeWoskin, a retired PwC partner and a former professor of Asian Studies at the University of Michigan, casts cold water on the notion that any of them are ready to sell cars in America. "China is still probably five or six years away," he said.

Steve D'Arcy, a PwC partner with extensive experience in China, said the necessary consolidation of the Chinese auto industry, which is considered a precursor to exports by a Chinese company, seems have been frozen for now.

"Enterprise reform is stalled in China right now," he said.

Moreover, Chinese companies with deficiencies in operations, distribution or product creation are looking at buying outside companies with the expertise to make up for their own shortcomings, particularly in dealing with the outside world, he said. 

"Chinese companies don't have a lot of experience," he said. "That was what was behind Lenovo's deal for IBM's Think Pad Business.”

DeWoskin said some Chinese auto companies will become contract manufacturers for other brands around the world rather than carmakers with their own nameplates. The model is already being used in the garden tractor business where Chinese-made tractors have opened up new markets for the international companies that make agricultural equipment.

D'Arcy said there is little doubt the Chinese are eager to export. Chinese-made cars have flooded into Russia's Far East, which has a long, common border with China. The cars made in China, while hardly perfect, are still better than the old domestically made models found in the Russian hinterlands. "You really haven't lived until you've driven a Lada,” he joked.

The pressure from the Chinese, however, is prompting the Russian government to get serious about reforming its own domestic auto industry. "Putin sees the automobile industry as a strategic asset," D’Arcy said. Consequently, the Russians have gone looking for help in rebuilding their own industry, which they would actually like to become vehicle exporters.  AvtoVaz's deal last month with Renault/Nissan was part of the strategy.

Chrysler LLC, meanwhile, is strengthening its links to a Russian automaker. Michael Manley, Chrysler LLC executive vice president of international sales and business development, was looking to expand its relationship with Russia’s Gorky Auto Workers or GAZ. 

“It’s clearly a big, big focus. GAZ is attractive us on a number of fronts,” said Manley, noting, that based on a deal signed in 2006, the Russian carmaker will begin building autos off of Chrysler tooling.

Chrysler's discussions with China's Chery Motors also are continuing, though they are still not complete.

“So far our relations has with Chery have developed well,” said Manley, Chrysler executive vice president of international sales and business development, who did offer any new timetable, though the discussion phase of the relationship with Chery has gone on longer than anticipated. A detailed agreement was expected last fall.

“But we’re pleased with where it’s got to and we see Chery as a great partner and we’re looking forward to completing those discussions and being able to announce something,” Manley said.--by Joe Szczesny

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