Chinese automakers stall North American move
Updated: 2008-04-22 16:12
China's fast-rising auto makers, enjoying spectacular growth in domestic and emerging markets, are postponing their ambitions in North America as they focus on easier markets in the near term.
Their sales in China and other emerging markets have soared so fast that they now regard North America as a lower priority. Car sales jumped by 21 percent in China in the first quarter of this year, showing no signs of weakening after five years of 20 to 30 percent annual growth. China has become the world's second-biggest car market, behind only the United States, and it could overtake the US within the next decade.
The two biggest Chinese-owned auto makers, Chery and Geely, are concentrating on expanding their range of vehicles for the Chinese market, moving into more expensive models with higher profit margins to complement the cheap small cars that have always dominated their China sales.
At the opening day of the Beijing Auto Show on April 20, Chery and Geely unveiled dozens of new models, including SUVs, mid-size sedans and other upscale models. Chery's sales surged by 30 percent last year, while Geely's profits leaped by 51 percent in 2007 after it succeeded in shifting some of its sales to costlier models.
Both companies are unwilling to give any firm timetable for tackling the North American market. "Geely is working hard to prepare, but it takes time to prepare the right product, prepare the right sales network, and even to prepare the supplier systems," said Frank Zhao, vice president of Geely.
"Without all those things being ready, I don't think you can do a good job. You can always claim to be ready, but are you really ready? The US is the largest and most difficult market in the world, and the customers are quite picky. Our brand recognition is low, so we'll have to promote it. It has to be a long-term strategy."
Chery, meanwhile, is reaping big dividends by focusing on emerging markets such as Russia, Ukraine and Egypt. It is selling cars in 62 countries, primarily in the Middle East, Asia, Africa and the former Soviet Union. Its overseas sales were 120,000 units last year, up dramatically from 18,000 in 2005, and it predicts a further rise to 180,000 units this year.
Chery predicts that it might take another two to four years before it is ready to enter the North American market. "Our strategy is to focus on the emerging markets," said Zhang Lin, general manager of Chery International. "We believe there is more growth opportunity in emerging markets such as Russia. The demand is so high that you can virtually sell everything. The US is a stagnant market, while Russia and Ukraine are booming, almost as much as China."
Barriers to entry are much higher in North America, he said. "Their customers are used to very high-quality vehicles, and their expectations of reliability and durability is very high. We have no urge to enter a market just for the sake of it."
Chery signed an agreement with Chrysler last year to produce a low-cost vehicle to be sold under Chrysler's Dodge brand in North America, but both companies said yesterday that the project is still under discussion and the proposed new car is still being developed.
Western automakers, faced with flat sales in North America, are pouring resources into the China market. Most are anticipating another strong year for sales in China, with some predicting increases of 40 to 65 percent this year.
Ford Motor Co, for example, is exhibiting a record 55 models at the Beijing Auto Show this week, after seeing its vehicle sales soar by 47 percent in China in the first quarter of this year.
"It's a clear recognition of the growth that's taking place in China today," said John Parker, vice-president for Asia Pacific.
Chrysler says its sales more than doubled in China in the first quarter. "That makes our growth here the greatest percentage increase of any volume market in the world for Chrysler," said Philip Murtaugh, chief executive officer of Chrysler's Asia operations.
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