A China's Chery Begins To Export Cars, Auto Companies Face New Competition

Ford (F) and GM (GM) said they would cut back production for 2008. Demand is just not there due to higher fuel prices and a slow economy. But, that is not the entire reason. The US car companies now have less than 50% of their own market. In November, Toyota (TM), Honda (HMC), and Nissan all had sales gains in the US. They make more fuel-efficient cars and rely less on SUVs and pick-ups.

Now, there is word that the largest independent car company in China, Chery, is going to push harder to move into overseas markets. According to The Wall Street Journal, "this year, Chery expects to sell more than 400,000 compacts, sedans and sport utility vehicles. By 2010, the company says it will be turning out a million vehicles annually."  The company will export over 100,000 cars in 2007, mostly to markets like India and Russia.

Chery has a joint venture with Chrysler. It hopes to pick up technical expertise as part of the deal. Of course, there is some irony in that. Chrysler gets low cost production, but it teaches Chery what it needs to know to compete with the US car company in global markets. Short-term thinking by Chrysler, but its private equity owners have to pay down a lot of debt.

The easy argument against Chery doing well in the US and Europe is that it cannot make quality cars.

US car companies said the same thing about the Japanese in the 1970s and about the Koreans a decade ago. That did not turn out so well.

Douglas A. McIntyre