CHINESE AUTOMOBILE INDUSTRY AND SALES OF CHINESE CARS ABROAD

AUTOMOBILE INDUSTRY IN CHINA

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Geely IG concept car
in Auto Shanghai 2011
Years of double-digit expansion have increased Chinese auto production to almost 17 million cars, minivans, pickup trucks and sport utility vehicles in 2010, from fewer than two million in 2000, making it almost twice the size of the United States or Japanese industries and far larger than any European country’s auto manufacturing sector.

China is now the largest manufacturer of automobiles as well as the largest buyer of them. China was the top car producer in 2009 with a production of 13.79 million units. It surpassed Japan at the top by a large margin. In Japan, domestic automobile production fell to a 33-year low in 2009 to 7,934,516 units, a 31.5 percent drop from the previous year. Production was at its peak there in 1990 when it reached 13.49 million units.

There is still a lot of growth potential. Still less than five people in 1,000 own a car. In 2007, Chinese drivers bought 8.5 million vehicles (5.5 million cars, minivans and SUVs and 3 million commercial vehicles). Sales should grow by 1 million vehicles annually until 2015. The number of families that can afford a car is expected t0 leap from 10 million 2005 to 75 million in 2015. The Chinese government is actively developing a car culture and car industry. One analyst told the Washington Post, “They’re taking the Japanese plan for national development and compressing the time.” The main car making cities are Shanghai, Tianjin and Guangzhou. Guangzhou hopes to become the Detroit of China. The annual auto show in Shenzhen draws a lot of interest.

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: 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.

Chinese automakers lack solid financial markets because the market is so fragmented as there are so many car makers and the market is dominated by foreign brands. As of 2009, foreign car companies held 85 percent of the Chinese car market. Nearly all the cars produced in China are made for domestic consumption. But even if Chinese brand associations can seem remote and perhaps amusing to those outside the country, Zhang Yu, managing director of Automotive Foresight, a Shanghai industry consultancy, says they will prove decisive to sales in coming decades. “China is already the largest automobile market in the world. No car company can afford to overlook its Chinese brand,” he said.

The auto shows in Beijing, Shanghai and Guangzhou are all drawing a lot of attention. The ones in Beijing and Shanghai are held in alternating years and tend be glitzier than the one in Guangzhou which is held every year and is geared more for the local market. The Beijing Auto show is now a major industry event. More than 2,100 automakers and auto parts companies from 16 countries showed up at the Beijing Motor Show in April 2010. At total of 990 vehicles were displayed, including 89 debut cars. The show attracted slightly more than 100 Chinese and foreign automakers in 2008.

So much investment money is going into the automobile industry that some analysts predict that China could have the capacity to produce over 31 million vehicles a year by 2015 and there could be a serious overcapacity of vehicles and inability of infrastructure to keep pace.

Websites and Resources

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Chery Fulwin at the
2011 Shanghai show
Good Websites and Sources: China Car Forum Automaker List chinacarforums.com ; China Car Forums chinacarforums.com ; Chinese Automobile chineseautomobile.com ; China Car Times chinacartimes.com ; China Motors. Ru china-motors.ru ; Analysis of Globalization of Chinese Automobile Industry glgroup.com/News/The-Path-to-Globalization ; Wikipedia article on Automobile Industry in China Wikipedia ; U.S. Commerce Department Information by Industry for China on the Transportation Industry buyusa.gov/china Book Kelly Sims Gallagher of Harvard’s Kennedy School is the author or book on Chinese automakers.

Industry in China: China-Made Products made-in-china.com ; U.S. Commerce Department Information by Industry for China buyusa.gov/china ; Wikipedia article on Industries of China Wikipedia ; U.S. Commerce Department’s Office of China Economic Area (OCEA) export.gov/china

Links in this Website: ; CHINESE FACTORIES AND MINES Factsanddetails.com/China ; AUTOMOBILE INDUSTRY IN CHINA Factsanddetails.com/China ; FOREIGN CAR COMPANIES IN CHINA Factsanddetails.com/China ; AUTOMOBILES IN CHINA Factsanddetails.com/China ; DRIVING AND OWNING A CAR IN CHINA Factsanddetails.com/China ; LABOR-INTENSIVE INDUSTRIES IN CHINA Factsanddetails.com/China ; LABOR-INTENSIVE INDUSTRIES--TOYS, CHRISTMAS STUFF AND FIREWORKS Factsanddetails.com/China ; LABOR-INTENSIVE INDUSTRIES--TEXTILES, FURNITURE, SPORTING GOODS Factsanddetails.com/China ; TECHNOLOGY INDUSTRIES IN CHINA Factsanddetails.com/China ; PIRATING AND COUNTERFEITING IN CHINA Factsanddetails.com/China ; SHENZHEN AND THE PEARL RIVER DELTA Factsanddetails.com/China ; ZHEJIANG PROVINCE Factsanddetails.com/China ; SHANGHAI Factsanddetails.com/China

Automobile Sales in China

See Automobiles in China article

History of the Chinese Automobile Industry

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Chinese built automobile
Before the Communist Revolution Model Ts were sold in China and Buicks were a prestige car. In the Mao era no one really owned a car. Only the elite had access to them. Engineers were assigned to truck factories because there simply wasn’t a market for passenger cars. Things began to open a little in the early Deng era. The First private vehicles appeared in Beijing in 1984. In 1985, the Chinese media gave front page coverage of the first farmer who bought his own truck

In the 1980s, foreign automakers were allowed to form joint ventures with state-owned Chinese partners with foreign ownership limited to 50 percent. The goal of the government was to develop a car industry quickly, learning from the foreign companies how to make cars while maintaining control of the car industry. Volkswagen and American Motors were the first. VW came and built the Santana model to serve the envisioned need for taxis. American Motors came and built Jeeps. Originally, they thought that this would be a good model given China's rural infrastructure. The American Motors/Beijing Auto Works #3 was the joint venture that formed the basis of China's Joint Venture Law. Every one made out well in part because competition was strictly controlled.

Passenger vehicle sales rose from 550,000 units in 1998 to 600,000 in 1999 to 630,000 in 2000 to 700,000 in 2001 to 1.06 million in 2002 to over 2 million in 2003 to 5 million in 2004. The sale of cars and light trucks rose from 420,670 in 1990 to 1.4 million in 1995 to 1.8 million in 2000 to 3.8 million in 2003.

Growth was 20 percent in 2004, down from 80 percent in 2003. Sales were slower in 2004, partly because efforts to slow down the overheated economy. Sales slowed a bit in 2005 as unsold vehicles piled and profits shrunk. In 2006 things began to pick up. Car sales were up 50 percent in the first half of 2006, with 1.8 million vehicles sold, up 46.9 percent from the previous year, with General Motors selling the most cars and Volkswagen in second.

Increased competition has cut the profit margin of cars sold in China from 9 percent in 2003 to 3.1 percent in 2006.

The Chinese government helped boost cars sales with is economic stimulus [package to address the global slump that provided tax cuts and subsidies for drivers who stitched to clean , more fuel-efficient cars.

Automobile Production in China

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Great Wall SUV
China’s automobile industry consists mainly of local companies that have joint ventures with well-established multinational companies. In the early years of many of the factories are outdated and inefficient Auto parts were either imported or made locally by hand with molds hundreds of miles away from the assembly plants. There were quality and transportation problems. These days things have improved a lot. Auto parts are made closer to the car plants and are exported.

Autoworkers get paid around $240 a month. This works out to about $1.50 an hour, compared to $30 an hour in Germany and $5 an hour in Poland. In the United States some workers get $65 an hour when their pensions, health insurance and other benefits are factored in. There are no independent unions in China. There are strong government pressures for workers to stay in line.

China has had success in the auto industry because of its access to cheap labor and technology of foreign automakers. Its research and development costs are minimal because designs are borrowed or copied for foreign firms. The safety and emission requirements of cars made in China are much lower than those of American made cars. China introduced its first fuel economy regulations in 2004.

China became the world’s third largest vehicle producer in 2007, surpassing Germany for third place. It produced 7.18 million vehicles Only Japan and the United States make more. Production is expected to increase at a clip of 1 million vehicles year for the next few decades.

Quality and efficiency is improving. With labor cost remaining low, China is beginning to produce reasonable quality cars for a fraction of the cost of cars built anywhere else. Many foreign automakers are cutting cost by buying more parts from suppliers in China.

Explaining how his company came up with a design for a SUV, an executive with one company told the Washington Post basically they bought all the SUV models they could and took them apart and studied them and copied them. It is not surprising that there is a lot of copyright infringement going on. One company sells a BYD with an emblem that looks almost exactly like a BMW emblem except the colors are reversed. Another company sells an SUV that looks a lot like Honda’s CR-V

China's auto manufacturing policies have provoked disputes with Washington and other trading partners. The United States, Europe and Canada launched a World Trade Organization case in 2006 challenging Beijing's effort to compel automakers to use Chinese-made components by imposing higher taxes on cars made with more than 40 percent foreign parts. The WTO ruled against Beijing in 2008, but by then automakers had developed local suppliers.

Zhu Rongji on China’s Automobile Market

In February 2003, shortly before his retirement from the political arena, Chinese Premier Zhu Rongji said,"I cannot agree with the idea of everyone buying a car. Should every household have a car, virtually no city could handle the consequences. First of all, where would we ever get that much gas?"

Former Premier Zhu Rongji said in a speech in 2011, “For China to solve transport problems in cities, the fundamental way was to boost the development of public transport...I pleaded not to spend public funds on buying cars ... I pleaded to boost the development of bus transport and public transport. Had my advice been followed, there would not have been such problems today ... There would have been no such traffic jams in Beijing.” [Source: Wu Zhong, China Editor, Asia Times, June 22, 2011]

"There is an 'honor' for China now that I really don't take as an 'honor'. China leads the development of the global automobile industry. I cannot help but wonder, when on earth did we begin to lead the development of the global automobile industry? The world laughs because they regard us as their market...I never stood for giving fiscal subsidies to boost the automobile industry. I am always for strengthening compulsory education in rural areas," Zhu said.

Overproduction of Cars in China’s Near Future?

One of the uncertainties in the auto industry lies in how much longer Chinese authorities will allow the country’s remarkable sales boom to go on and whether China will export a flood of cars if the authorities do clamp down. Rising concern about the impact on traffic, the environment and fuel prices has prompted the government to promote energy-efficient vehicles and public transport. Beijing has sharply restricted issuance of new vehicle registrations, handed out rebates to millions of buyers of fuel-efficient cars and is doubling the length of its subway system with a 330bn yuan investment. High-speed rail networks are being rolled out nationwide, most recently from the capital to Shanghai.[Source: Keith Bradsher, New York Times September 4, 2011]

Bradsher wrote: Any slowdown in growth is likely to shock the world’s automakers. Practically every American, European, Japanese and South Korean automaker is expanding in China, including General Motors, Ford Motor, Nissan Motor and PSA Peugeot Citroën. Chinese automakers are building assembly plants even faster. [Source: Keith Bradsher, New York Times September 4, 2011]

J.D. Power & Associates, the global consults, estimated last month that China would have a manufacturing capacity of 31 million vehicles by 2013. Yet the domestic market has decelerated sharply this year, with sales of family vehicles up just 5 percent in the first seven months, compared with the period a year earlier. By contrast, sales had soared 33 percent in 2010, compared with 2009.

What would happen to the automobile industry’s emerging overcapacity was largely unaddressed at a conference in 2011. Much slower sales growth has prompted strong lobbying by the auto industry for a renewal of government incentives. But if anything, policy makers seem to be leaning toward more limits to address China’s steeply rising dependence on imported oil and its traffic jams, air pollution and shortages of land in many areas for more road construction.

Why Chinese Cars Are So Cheap

"What makes Chinese cars so much cheaper? Start with labor," Vildozo said, noting that a typical Chinese autoworker makes $300 to $400 a month, a fraction of the $2,000 to $3,000 in wages that Mexican workers make or the $5,000 to $7,000 a month that U.S. auto workers average. [Source: Adriana Leon and Chris Kraul, Los Angeles Times, February 9, 2012]

Another price advantage, said Jian Sun, a partner with AT Kearney business consultants in Shanghai, stems from the "reverse engineering," or design and mechanical imitation, that many Chinese carmakers use in competing models to save them the expense of designing new models from scratch.

When Chinese automakers asked for help during the economic crisis in 2008 and 2009, the Chinese government responded with subsidies and slashed the sales tax on small, fuel-efficient cars, spurring demand. China’s auto exports jumped nearly 70 percent in April 2008 from the previous years, surpassing 70,000 units.

Advancing Automobile Industry in China

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Chinese-made Changsan minivan
In an effort to make the Chinese automobile industry more competitive internationally, the Chinese government has encouraged car companies to consolidate, combining the 14 largest car makers into 10 and weaning them off their dependance on government subsidies and joint ventures with foreign companies. Shanghai Automotive Industry Group (SAIG), China FAW Group, Dongfend Motors and Changsan Automotive have been encouraged to buy smaller rivals. The government took a similar action in the steel industry.

For some the recent purchase of Hummer by a Chinese auto company has become symbolic of China’s embrace of car culture and drift towards a culture that was once seen as the private domain of the United States. Peter S. Goodman wrote in the New York Times, “China has come to embrace many of the modes of consumption that Americans may reflectively consider their own, complete with the sprawl and tangle of highways familiar to any resident of Los Angeles or Atlanta...China has put the automobile at the center of contemporary life. China has torn down older buildings in every major city to make way for more vehicles. It has erected an impressive network of highways crisscrossing the vast country. Air quality and energy efficiency have been outweighed by reverence for the car.”

“This has not happened randomly. In recent times China’s leaders have unleashed enormous quantities of state finance to seed auto ventures in every province, spurning industries that have grown along with the ubiquity of the car. Petrochemicals, steel, glass-making and rubber have all expanded to feed auto-making. Tourism and retail shopping have increased as more Chinese take possession of steering wheels.”

“Along the way, many Chinese aspirations have come to focus on car ownership. In a country where so many people look back with bitterness on the regimented days of Maoism. And where public transportation still involves packing into belching buses and gruesomely crowded trains, the car has become a vessel for Chinese dreams.”

Chinese Electric and Hybrid Cars

See Separate Article

Chinese Cars

China's first motor vehicles---Liberation trucks, with 95-horsepower engines, and Red Flag limousines--- were produced in the 1950s at a factory in the Jilin province, built with Soviet help. The Red Flag is modeled after the 1948 Packard car and looks like the cars seen in old gangster movies.

Red Flag stretch limousine. See Mao History

The number of models sold in China has increased from six in the mid 1990s to 90 in the mid 2000s.. Foreign luxury cars and four-wheel-drive vehicles are popular among the rich. More Audi A6 and BMW 760Li are sold in China than anywhere else in the world. Rolls Royce and Bentley have dealerships in Beijing and Shanghai. Less well off Chinese buy compacts for driving around and vans or pick up trucks they can use to make money. Bureaucrats and party members drive around in cars the government tells them to buy.

The cheapest car on the market in China in the 1990s was the Changse. Retailing for $6,700 and nicknamed the breadbox, this tiny vehicle could reach speeds of 60 mph as long as there wasn't a headwind. "The Changhe has all the zip of a covered golf cart" wrote Steven Murfson in the Washington Post. "It looks like a minivan, only it is less than half the size of those usually sold in the United States. Construction quality appears to be shoddy, and the vehicles are relatively unstable." Other Chinese cars on the market at that time include the Lucky Star "Supermini," a three door model made by the firm Tint Dragonfly

China’s best selling car in the late 2000s was the M1, a 1,000cc to 1,300cc compact from domestic maker Chery Automobile Co. that goes for about $4,500 to $6,000. According to the Chinese Association of Automobile Manufacturers, top-selling cars in the nation are those with engine capacities less than 1,600cc and priced at about $8,000. Light commercial vehicles, called "bread vans" due to their loaf-like appearance, are especially popular in farming districts. Chinese consumers who make more than $8,000 per year reportedly buy cars at about the same level as their annual incomes.The bestselling car in 2005 was the Charade, a subcompact produced by FAW. It is a Chinese version of a Japanese car licensed from Daihatsu.

QQ, See Chery

The top selling automobile in China in 1995 were: 1) VW Santana; 2) Daihatsu Charade; 3) Jeep Cherokee. Santanas are a favored vehicle of Communist officials.

Prices have been dropping. A VW Santana sold for $21,000 in 2000 and cost $9,000 in 2005.

A new Volkswagen compact sells for around $12,000. A new Japanese car cost around $20,000. A new Volvo goes for $100,000. A top-of-the-line Audi 6, the favored car of the Communist elite sells for $200,000.

Expanding China’s Automobile Industry into Europe and the U.S.

Keith Bradsher wrote in the New York Times: “The government has prohibited Chinese automakers from making big jumps into the American market and severely restricted their entry into the European market. They have also demanded that automakers increase vehicle quality considerably, and have suggested that high-volume exports may not be allowed to start until 2015 or so. [Source: Keith Bradsher, New York Times September 4, 2011]

The goal has been to make sure that when large-scale exports begin, Chinese cars do not initially acquire the same reputation for shoddy quality that bedeviled the South Korean industry when it entered the American market and that took many years and offers of long, costly warranties to overcome.

Wu Song, the deputy general manager of the Guangzhou Automobile Group, which has alliances with a several Japanese automakers, said that President Hu Jintao of China had visited the company on Aug. 14 and told executives to improve technology. The company plans to do that and start selling cars under its own brands, Mr. Wu said, adding, “We must own our own brands to compete in the international market.”

One of the biggest problems that Chinese automakers have in selling their cars abroad is meeting foreign safety and emission standards. Chinese automakers also have to overcome to enter the American and European market include overcoming doubts about Chinese quality. Only a few hundred Landwinds were sold in Europe after it received a zero safety rating by a German automobile club. Still many take the Chinese very seriously. They could make to same progress in five years that the Japanese made in 20 years and the Koreans made in 10.

Five Chinese companies---Changfeng Motors, BYD Auto Co., Geely, China America Cooperative Automotive and Li Shi Guabng Ming Auto. Design Co.’showed up at the Detroit auto show in 2007 Geely and Hunan Changfeng were at the 2006 show. Hunan Changfeng makes low cost SUVs and pick-up trucks, using engines and parts imported from Italy and designs it devised partly as the result of a decade-long collaboration with Mitsubishi. Its autoworkers are paid $300 a month. Its new car, which some said looked like it was from the 1980s, was displayed in a basement exhibition space.

The first Chinese-made cars exported to Europe were 200 Landwind SUVs shipped by Jiangling Motors to Belgium in July 2005. They cost about half their main European competitors. Its distributor told the Washington Post, “You can not compare to a VW or a BMW. It doesn’t have a high-power engine or the most modern suspension. But for the money, you get a hell of a lot of car.”

Hebei Zhongxing in Baoding is attempting to set up a deal to sell pick-up trucks and SUVs that list for under $10,000 in California. Brilliance China Automotive has plans to sell cars in Germany. The cars these companies sell are about the half the price of comparable European- and American-made models. Brillance missed it goal of launching a vehicle in the United States in 2009. BYD had hoped to introduce its plug-in electric car in the United States in 2010 but pushed that date to 2011.

Europe's First Chinese Auto Plant Opens in Bulgaria

In February 2012, AFP reported: “Great Wall Motor became the first Chinese automaker to open an assembly plant in Europe, aiming to produce 50,000 vehicles per year for the whole continent in northern Bulgaria. "Great Wall's plans to build a plant in Bulgaria and produce automobiles here are aimed at boosting our production capacity and exporting these automobiles for the European market," company president and chief executive Feng Ying Wang said. [Source: Diana Simeonova, AFP, February 21, 2012]

"We estimate that in three to five years we will have a wide range of models made here and that these cars will be sold in all European countries," she added at the plant near the northern village of Bahovitsa. Expanding sales in the European Union was "of key strategic importance" for the company, which is one of the leaders in China -- the largest car market in the world -- and exports to 120 other countries, Wang said. "We offer the highest quality and that is why we were the first to move forward with plans to start production in Europe," she added proudly. Wang's company is the only Chinese automaker to have already obtained Whole Vehicle Type Approval to market several of its models in the EU.

The facility in Bahovitsa, built together with Great Wall's Bulgarian partner Litex Motors, will initially employ 150 workers making 4,000 automobiles per year from Chinese-imported kits. But plans are to expand capacity to an annual 50,000 cars and 2,000 workers. The company started sales of three Chinese-imported models in Bulgaria in October 2011 and supplying the Bulgarian market with locally-assembled cars will remain an immediate priority, Wang said. Sales will then start in neighbouring countries, with Macedonia, Albania and Montenegro expected to come first by end-2012, while talks will start this year for sales in Serbia, Litex Motors marketing director Ivo Dekov added.

"Our long-term plans are that after this first step the automobiles will be presented on the markets of the other European countries," Wang said, adding that the firm's aim was to sell cars of "top quality at reasonable prices." "We proved that we can produce a car that meets all quality standards, including the toughest EU safety rules," Litex Motors executive director Iliya Terziev said, backdropped by a tomato-red Vollex C10 city car -- the first model now assembled in the Bulgaria plant. Terziev's company provided the bulk of the 55 million leva (28 million euros, $37 million) invested in the facility so far. Total investment is planned up to 150-160 million leva as welding and painting units are added to the assembly lines within the next two to three years, he said. Talks will also start in the meantime to find Bulgarian subcontractors and start making some parts here in the long-run, rather than only assembling China-imported kits, Terziev added. Until then, the number of models assembled here will grow from the initial Voleex C10 to also include Great Wall's popular Steed 5 pick-up truck. The Hover H6 SUV and two more Voleex models, the C30 and 20R, will follow in 2012, Dekov said.

Exported Chinese Cars

At the Beijing Motor Show in April 2010, Chinese automakers announced ambitious plans to expand abroad and unveiled new models with foreign markets in mind. Chery released the Riich G5 car with an advertisement featuring Lionel Messi, a star soccer player for Argentina and Barcelona. Geely unveiled six alternative fuel vehicles. Chery exported cars to 70 developing countries in Asia, the Middle East and Latin America in the mid 2000s. It hoped to double foreign sales in 2010 to 100,000 vehicles.

The Chinese have been interested in selling cars abroad for some time. One Chinese economist told Theroux in the 1980s, "What we want to do is make cars and sell them to other countries. The export market---that's what interests us." In the past Chinese automakers have announced ambitious plans to expand into North America and Europe but fell short in meeting safety and environmental standard there.

In July 2002, the Tianjin Auto Group began exporting Xiali sedans for re-export to Mexico. In 2004, China exported around 100,000 vehicles, mostly to Southeast Asia, Africa and the Middle East. In 2005, Honda began exporting Chinese-made cars to Europe. The first Chinese-made cars exported to Europe were 200 Landwind SUVs exported in July 2005. Chery has plans to sell cars in the United States in 2007. Geely and Great Wall have plans to sell cars abroad (See Above). Chinese vehicles are being marketing pretty heavily in Brazil, where a basic JAC model sells for $24,000 and comes with a six-year warranty.

Some analysts predict that Chinese car makers could capture as much as 10 percent of the European market by 2020, comparable to the share that Japanese car makers now have in Europe. On efforts by Chinese automakers to expand abroad, John Zeng of IHS Global Insight told AP, “Even in developing countries, Chinese automakers still have a lot to do to know the local market, to improve quality. I think the top priority for most Chinese automakers is still to get the right market share in China, especially because this is the market that is growing fastest.”

Chinese Cars Becoming Popular in Latin America

Adriana Leon and Chris Kraul wrote in the Los Angeles Times: At first, Lima taxi driver Mario Segura was disgusted by the thought of buying a Chinese-made car. He had doubts about the vehicles' durability, service and resale value. But favorable word of mouth, assurances that spare parts are plentiful and, of course, unbelievably low prices won him over. "Little by little, I heard favorable comments," said Segura, speaking in a Chery showroom in the Surquillo district. He had just plunked down $12,000 in cash for a new Fullwin XR sedan, half the cost, he said, of a comparable Fiat or Renault. "It took a long time to decide, but I'm risking it." [Source: Adriana Leon and Chris Kraul, Los Angeles Times, February 9, 2012]

So is Luis Luna, a doctor just back in Lima after working for several years in Argentina. He had planned on buying a secondhand Japanese car. Until, that is, he noticed billboards touting low-priced Chinese brands and listened as his relatives insisted that he kick tires at a JAC dealership, one of dozens of Chinese brands sold here. "We realized for the same money that we'd pay for a crummy secondhand car that inspired no confidence, we could have a brand-new Chinese car with a two-year warranty," Luna said as he finished paperwork on his new $16,000 JAC B-Cross family wagon. "I'm totally convinced this is the right decision."

Similar buyer testimonials can be heard across Latin America these days, where Chinese cars with unfamiliar brand names like Great Wall, JAC, Brilliance and Sinotruk are selling like hot cakes. Chinese cars were introduced in Peru in 2006 and now one in six new cars sold here is a Chinese make. There are no fewer than 90 Chinese car manufacturers to choose from, according to the trade group Automobile Assn. of Peru. The Chinese auto industry has yet to undergo the winnowing process that, over a century of competition, has reduced the U.S. car industry to three big players.

Why Chinese Cars Are Popular in Latin America

Adriana Leon and Chris Kraul wrote in the Los Angeles Times: The Chinese brands' main selling point is, of course, price: New Chinese cars typically sell for half to two-thirds the cost of a comparable European, U.S. or Japanese vehicle, said Guido Vildozo, an auto industry expert with consultants IHS Automotive in Lexington, Mass. [Source: Adriana Leon and Chris Kraul, Los Angeles Times, February 9, 2012]

Chinese manufacturers are entering the market as Latin American incomes are rising to unprecedented levels, flush from the decade-long global commodities boom filtering down to an expanding consumer class. Augusto de la Torre, chief Latin America economist at the World Bank, said the region's middle class now encompasses 30 percent of its population of 570 million, up from 20 percent in 2002.

In Colombia, where the economy is thriving on global sales of its oil, coal, coffee and bananas, the increase in disposable income is especially dramatic. Bank of Bogota economist Camilo Perez said economic output per capita has nearly doubled in five years, to $6,700 last year from the $3,400 average in 2006. So it comes as no surprise that car sales are accelerating. New units sold last year in Colombia totaled 325,000, a 28 percent increase from 2010. New car sales in Peru totaled more than 100,000 last year, up 26 percent from the previous year. According to Scotiabank, Brazil's car sales will grow to 2.8 million in 2012, up 4 percent from last year, but in a much larger population base than those of its neighbors.

The expanding new-car market is what attracted Chinese automakers, who see Latin America as a proving ground for its plan to conquer the world car market in coming decades. According to AT Kearney, China exported 800,000 cars last year but hopes to boost that number to 2 million by 2015 and to 3 million by 2020.

The Latin focus is also explained, AT Kearney's Jian said, by the fact that Chinese manufacturers are not yet prepared to tackle the U.S. and European markets, which are more demanding in quality and emissions standards. The competition is less intense and the regulatory restrictions are lower in emerging markets, he said. China and these regions share similar road conditions, emission controls and safety standards.

Many buyers, like Antonio Benevides, a 26-year-old theme park worker in Bogota, are first-time owners. In early December, he bought a new Chery QQ model for $9,000, two-thirds the cost of a comparable Renault he had considered. "That difference in price is what put a new car within my reach for the first time," Benevides said as he drove his car off the dealership lot near Bogota's international airport. "I've heard they hold together well, that they are cheap to operate and, as you can see, they are not bad looking."

Tires, Auto Parts and Motorcycles

20080315-commerce-motorcycle Nolls.jpg In August 2007, a U.S. tire importer recalled 255,000 Chinese-made tires because they lacked a safety feature that prevents tread separation. A survey of 51 types of truck tires and tubes conducted by the Chinese General Administration of Quality found that 14 percent failed to meet safety standards, failing a tensile strength test. The families of two men killed in van accidents blamed on faulty tires sued the tire company. The Chinese tire company said that it had been a victim of distortions.

China exported $12 billion in auto parts in 2007, up from $2 billion in 2002. Shanghai General Motors---a China-based joint venture of G.M. and Shanghai Automotive Industry---produces engines for the Chevy Equinox and the Pontiac Torrent. The engine has a reputation for being “lackluster” but experts say that has more to do with the G.M. design than Chinese manufacturing.

Chongqing-based Lifan Motors is the largest maker of two-wheeled vehicles in China. It makes many of motorcycles sold in Vietnam, and sells products in 18 European countries.

See Honda

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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