GEELY, CHERY AND OTHER CHINESE AUTOMAKERS

CHINESE AUTOMAKERS

China has lots of automakers. But the country engine and car technology lag far behind that in Japan and the West, and many Chinese carmakers have for years been accused of stealing designs and technology. There is no lack of ambition in the Chinese automobile industry. The Chinese billionaire Yin Mingshan has plans to move an entire $500 automobile engine plant---jointly owned by BMW and Chrysler---plant from Brazil to China There is an industrial zone devoted to automaking west of Shanghai called “Auto City.”

As of 2009 there were 52 foreign and domestic carmakers operating in China, compared to 15 in the United States. Top car makers in 2006 were: 1) Shanghai GM; 2) Shanghai Volkswagen; 3) FAW Volkswagen; 4) Chery; 5) Beijing Hyundai; 6) Tianjin FAW Toyota; 7) Tianjin FAW Xiali Automobile; 8) Geely Automobile; 9) Guangzhou Honda ; 10) Dongfeng Peugeot Citreon. These top 10 automakers account for 70 percent of total sales.

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Nanjing motors car
As of 2005, there were 100 car makers in China, with a manufacturing capacity of 6 million vehicles. Competition is very fierce. There is a lot of price cutting and cost cutting. Few make any profit. The situation is expected to get worse. The industry is going through a $25 billion expansion, which is expected to double capacity by 2007. Stepping up production and expanding has been made possible by tax breaks, generous loans and cheap land from the government.

As of 2005, Chinese brands held a 26 percent market share, up from 2 percent in 2000. Top five Chinese automakers in 2005: 1) FAW Group; 2) Shanghai Automotive Industries; 3) Dongfeng Motors; 4) Changan Automotive Group; and 5) Beijing Automotive Holdings. Other larger manufacturers include Guangzhou Motors, Second Auto Works.

In 2000, China had 120 auto assembly companies. Thirteen accounted for 98 percent of the country's car sales. In June of 2004 government offered incentives for these companies to combine. The government’s aim to have three of four Chinese automakers become major players in the global market. First Auto Works (FAW) and Shanghai Automotive Industrial Corporation the only two that produce more than 500,000 cars a year. Eight others produce more than 100,000 cars but 95 failed to produce more than 10,000 cars.

Many Chinese automakers are partly or entirely owned by municipal or provincial governments, however, and these lower tiers of government have pushed their manufacturers to expand as fast as possible to maximize jobs and economic output.

Large Chinese Automakers

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FAW-produced car
Shanghai Automotive Industries (SAIC) is the largest automaker in China. It has a partnership with General Motors and Volkswagen. In 2003, it obtained a share of South Korea’s Daewoo Motors. In October 2004, it acquired the controlling stake of South Korea’s Ssangyong Motor Company for $500 million. In December 2007, it bought Nanjing Automobile Group’s auto-assembly and component-making businesses. In 2007 its stock more than tripled in value. Its goal is to sell 2 million vehicles a year by 2010.

SAIC was No. 1 in sales in 2009. FAW was No. 2.SAIC sold 2.7 million vehicles in 2009, up 57.2 percent over 2008, and increased its profits tenfold.

First Auto Works (FAW) is the second largest automaker in China. Based in Jilin Province, it makes luxury Red Flag sedans limousines and Xiali compacts and Jiefang trucks and other models. It has partnership deals with Volkswagen, Audi, Mazda and Toyota and has 30 wholly-owned units and 17 holding companies, total assets of 117 billion yuan and 129,492 employees. In 2005, it has sales of around $12 billion. Many of the taxis and cars used by government officials are made by FAW This partly because Beijing pressures taxi companies and local governments to buy FAW cars.

FAW has been producing Liberation (Jiefang) model trucks since 1949. Based on a Russian design, they were the first trucks to be build after the Communist take over of China. The 10 millionth Liberation truck was produced in October 2009.

Dongfeng is the third largest auto company in China (2006). Based in the central province of Hebei, it makes Nissan, Honda and Citreon cars and is based in the city of Wuhan. It only owns parts of ventures and often does not have control over them. It may replace Nissan with Volvo as its partner after Volvo bought Nissan; stake in Dongfeng in 2006.

Chongqing Changan Automobile is Ford’s largest partner in China. It makes the Mondeos and Fiestas with Ford, In December 2004, ir announced it would combine with Ford’s other partner Jiangling Motors. The expansion allows Changan to qualify for government incentives. The two companies accounted for 11 percent of vehicle sales in China in 2003. Changan, which also makes Alto minicars with Japan’s Suzuki, sold 385,498 cars in 2003. Jiangling sold 58,518 minicars, light trucks and pick up trucks.

Chery

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Chery QQ
Chery is the forth largest Chinese car maker and the first Chinese car maker to export vehicles. Based in Wuhu in Anhui Province and owned by the Anhui provincial government, it uses European manufacturing equipment, stolen European factory designs and Japanese production techniques to make QQ minicars, which sell for as little as $4,000 and are so remarkably similar to the Chevrolet Spark that GM sued them for patent violations and espionage. The Chinese name of the company is Qirui, which has links to good fortune.

One of the main forces behind Chery (pronounced “cheery”) is Yin Tingyao, a former executive at Volkswagen that helped that company get started in China. The precursor of Chery---a secret assembly line---was set up using equipment purchased from an outdated Ford engine factory in England and plans from a Spanish subsidiary of Volkswagen that use the same platform of the Volkswagen Jetta. [Source: Peter Hessler, The New Yorker, September 26, 2005]

The precursor of Chery manufactured its first engine in May 1999 and completed its first car seven months later, using Jetta parts from suppliers who were supposed to work exclusively for Volkswagen. Volkswagen was furious. The government was angry but later forgave the company. An executive at Chery told The New Yorker, “If you apply in the traditional manner you’ll end up waiting for years. During that time, the opportunity may very well pass you by.”

Chery is well financed but how well financed is not clear. There was one report of a $610 million government loan. By 2004, Chery was the seventh largest Chinese car maker, with 90,000 vehicles old in 2004. At that time the average age of Chery employees was 24 and some of the engineers earned $200 a month, lived in dormitories and had only possessed driver’s licenses for a few months. By copying, or perhaps stealing deigns, they saved a bundle in research and development, knowing that they chances were slim they would be prosecuted for what they did in China.

Another important force behind Chery is Malcolm Bricklin, an American entrepreneur who brought Suburu to America in the late sixties, designed a futuristic sports car with gull-wing doors in the 1970s, brought the Yugo to America in the 1980s, declared bankruptcy in the 1990s and in the early 2000s decided that Chery was the wave of the future. Bricklin works through Visionary Vehicles, a Delaware-registered company that markets the Chery in the United States.

Chery exports cars to 70 developing countries in Asia, the Middle East and Latin America. It hopes to double foreign sales in 2010 to 100,000 vehicles. Chery released the Riich G5 car with an advertisement featuring Lionel Messi, a star soccer player for Argentina and Barcelona.

Chery Cars

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Another Chery car
Chery has had big success with its QQ micro cars, selling 80,00 of them in 2004 and 110,000 in 2005. Marketed using Internet and cell phone schemes, it is known not only for its cheap price but also for its flashy canary yellow and lime green colors The QQ accounted for 60 percent of Chery’s sales. Chery’s A15 Qiyun and “Son of East” models have been flops.

In 2005, GM Dawoo sued the Chery because the QQ minicar is virtual copy of the Chevrolet Spark The QQ costs about $1,500 less than the Spark and outsold it 6 to 1 in 2004. The two cars are so similar that their doors are interchangeable. When asked how th QQ managed to be to so cheap, the manager at one Chery dealership told the Financial Times, “Because we do not have patent fees.” Chery was cheeky enough to apply for a patent for some of the designs it likely stole. Chery and GM reached a settlement out of court and did not disclose the terms.

As of 2006, Chery had signed up more than 25 dealerships in the United States and hopes to eventually have 250 nationwide. In 2006 it made a deal with DaimlerChysler to build subcompact cars in its behalf.

Chery built 272,000 vehicles in 2006. It exports cars to Russia, Indonesia and some African countries and hopes to export 250,000 vehicles to the United States in 2007 and one million by 2012. Among the five models it hopes to sell there is the T-11 SUV which look remarkably similar ro a Toyota RAV4 and luxury sedan that sells for around $20,000.

In August 2007, Chery made a deal to supply Fiat with 100,000 engines a year. A planned joint venture with Chery and Fiat that was scheduled to start production in 2009 was delayed. Chery also has a deal to make small cars for Chrysler. Chery was named as a possible buyer of troubled Ford or Volvo.

Geely

Geely is China’s largest private-run carmaker, which itself is a rarity in China. It was founded by Li Shinfu, a man who likes to view himself as the Henry Ford of China and has a dream for Geely to be a big international company. Helping the company realize that ambition is the Chinese government, which has provided Geely with access to soft loans and local government investments that has allowed it grow and purchase Volvo. Geely (pronounced Jeely)is the 8th largest automaker in China (2006) and is comprised of two auto companies: Zhejiang Geely and Shanghai Naoke Guorun. It introduced the popular Merrie, which sells for $8,700, in 2003. In 2005, it sold 140,000 vehicles, including 10,000 that were exported to 30 countries in Latin America, Eastern Europe and the Middle East. In 2004, it sold 96,700 vehicles up from 27 percent from 2003. The Geely CK sells well in Cuba where it used as taxi and a police car.

Geely was the first Chinese automaker to present itself at the Detroit auto show. It had plans to launch a low-cost sedan, listing at less than $10,000, in the United States in 2008. It hoped to sell 25,000 vehicles the first year and increase sales to 100,000 vehicles within five years

Geely has an annual output of 300,000 vehicles and a 3 percent share of the Chinese market. The company displayed 55 vehicles, including 11 new models and a plug-in electric car and five other alternative fuel vehicles at the Beijing Motor Show in April 2010. Geely hopes to sell 400,000 vehicles in 2010, and 2 million by 2015.

In September 2009, Goldman Sachs announced it was going to buy $250 million in Geely bonds, effectively giving it a 15 percent stake in the Chinese automakers. Geely welcomed the move not so much for the money but for the seal of approval by one of Wall Street’s most successful investment firms and the boost to its reputation and the credibility of its ambitions to be a global carmaker.

Geely Buys Volvo

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Geely car

In March 2010, Geely bought Volvo for $1.8 billion from Ford. It was China’s biggest overseas car purchase. Ford and Geely had been negotiating the deal, which had Beijing’s support for more than two years. In 2009, Geely had 16 percent of the turnover and half the workforce of Volvo. The same year Volvo lost $1.3 billion and sold only 335,000 cars, with only 22,000 sold in China. Ford paid $6.5 billion for Volvo in 1999. Geely has plans to build a Volvo factory near Beijing that produced 300,000 vehicles a year.

The match seems a little strange in that Geely is known mainly from producing small, cheap cars and Volvo staked its reputation over the years on producing reliable safe cars embraced by the American and European middle class. As it grows and develops, Geely hopes to profit from Volvos’s expertise on making safe cars and running a global supply chain and in return provide Volvo with access to China’s potentially-lucrative and fast-growing car market and double the carmaker’s sales to 600,000 by 2015. There are many who have doubts about whether Geely is up to the job of turning around a well-known but ailing automaker.

Pundits figured Geely bought Volvo from Ford was to expand China's economic heft---and its brands---overseas. But as Geely's founder, Li Shufu, put it, "Volvo will find a new home market in China."

Volvo expanded it dealer network to 81 Chinese cities. By September 2010, China was Volvo’s third largest market. The company is planning to build a factory to make compact and economy cars in Chengdu in Sichuan Province Geely acquired an Australian drive train transmission supplier and leading gearbox manufacturer.

Chery and Geely Success

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Another Geely car
Geely Group and Chery are largest auto makers that market and sell cars in China. They are known for adapting quickly to the Chinese market and producing affordable cars but they have also gotten into some legal trouble because of copying designs from foreign manufacturers such as Toyota and GM.

Geely and Chery do well in countries like Algeria, Syria and Ukraine and markets in Asia, Africa and the Middle East. Because of Geely’s and Chery’s success in these places China exported more cars than it imported for the first time in 2005. This isn’t saying that much because China doesn’t import very many cars except for luxury cars like Mercedes S-Class, BMW 7 Series and Toyota Lexus, and only exported around 125,000 cars in 2005.

BYD

BYD is a Shenzhen-based company that became the world’s second largest battery maker in less than a decade. As of early 2009, it had 130,000 employees at seven main facilities in China. Its complex in Shenzhen has a soccer stadium for employee games, an extensive apartment complex for employee’s families, schools for their children and gardens with palm trees.

BYD was founded by Wang Chuanfu in 1995 when he was in his early 30s. Wang graduated from Central South University in 1987 and is an expert in materials science. BYD went public on the Hong Kong exchange in 2002. Warren Buffett is among its investors. In September 2008, he purchased a 10 percent stake of the company for $230 million.

BYD became the world’s leading small battery company in 2005 and is one of the world’s largest manufacturer of rechargeable batteries. Its batteries are found in cell phones, digital cameras, iPods, electric toothbrushes, vacuum cleaners and a host of other products.

BYD is emerging as leader in the electric car sector. It has built a 1.6-million-square-foot assembly plant and has hired Italian-trained car designers to make plug-in hybrid car that can be charged using an electric outlet at home. The vehicle, the F3DM, can run for at least 100 kilometers on battery power alone, after which a gasoline engine kicks in. The vehicle is powered by an iron-based battery that can be fully recharged on a home socket in seven hours and is said to be able it be recharged over 1,000 times, a high number. When a drivers presses on the gas the car accelerates just like a gasoline-powered car, with enough punch to send the drive pushing back into the seat. The retail price is $22,000.

BYD hopes to have an electric car ready in 2010 and sell it the United States in 2012. BYD has made a four-door, all-electric vehicle capable of traveling 300 kilometers on a single charge that can be charged at a charging station in around an hour or in a plug in outlet at home for a longer period of time. The car is capable of going from 0 to 100 kilometers per hour in 14 seconds.

BYD employs 5,000 auto engineers and an equal number of battery engineers whose salary begins at around $600 a month. Assembly line workers are paid between $150 and $300 a month. The company makes most of its components itself, an advantage in the car industry. It has goal of being the largest car maker in China by 2015 and the largest in the world by 2025.

See Electric Cars

Nanjing Automobile Group and MG

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Nanjing Motors car
Nanjing Automobile Group is China’s oldest auto maker. Founded in 1947, it employs 16,000 people and has an annual production capacity of around 200,000 vehicles. It makes cars, trucks and buses and produces Palio and Sienna cars with Fiat. It lost money in 2004.

In July 2005, Nanjing Automobile Group bought the collapsed British automaker MG Rover Group for $87 million. MG Rover had declared bankruptcy a few months before, with debts of $2.4 billion, after another Chinese automaker, Shanghai Automotive Industry, pulled out of a merger deal that was expected the save the company. Nanjing Automobile Group’s purchase left it liable for some of MG Rover’s debt but gave it access to new technology, a well-known brand name, and the ability to produce a wide range of vehicles.

Nanjing Automobile Group plans to move some of MG Rover’s operations to China and keep some in England and reopen MG Rover’s Lonbridge plant in central England, which had been forced to close down, with the loss of 6,000 jobs. MG Rover is about 100 years old. At its peak in the 1960s it produced 40 percent of the cars sold in Britain and employed 250,000 people, with Longbridge being one of the largest auto mobile factories un the world. In recent years it had fallen on hard times. It had not introduced a new model since 1998, had only a 3 percent share of the British auto market at the time of its collapse and had been kept afloat for several years with bail-out loans from the government.

Nanjing plans to build MG brand cars in Oklahoma, which could make it the first Chinese automaker to assemble vehicles in the United States. The plan is keep management in Britain for a while because Nanjing wants MG to “retain its Britishness.”

Nanjing produced it first cars under the MG brand in March 2007---the 1.8 liter MG TF roadster and MG 7295and 7275sedans--- at the plant near eastern Nanjing. The brand name has been renamed Ming Jue or Modern Gentleman. The cars will go on sale in late 2007.

In June 2007, MG TFs began rolling off the production line at the Longbridge plant in Birmingham. The aim there is produce 15,000 MGs a year there. The plant, which once employed 30,000 workers, now has just 130 involved in car manufacturing. . The number may increase to 250 but still is a fraction of the 6,000 that were employed at the plant when it closed down in 2005. The Longdrige site is being developed for other industrial usages.

Image Sources: Wiki Commons, Makers of the cars shown

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

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© 2008 Jeffrey Hays

Last updated April 2012

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