To boot, Chrysler is helping to create future competition in exchange for better short term cash flows by transferring knowledge and production technology to Chery. Chrysler obtains an immediate source of income via sub-contracting deals with Chery, but Chery intends to enter the same markets as Chrysler several years down the line with their own brand of products.
Both articles are from "Automotive News Europe."
Deals with West boost expertise of Chinese; Maturing automakers will not 'reinvent the wheel' to compete with global giants
BYLINE: Alysha Webb
In July, Chery Automobile said it had agreed to supply small cars to Chrysler for the US, Europe and other export markets.
The deal helps Chrysler because the small, inexpensive car from Chery will fill a large hole in its US lineup. And the deal will help Chery, too.
By working with Chrysler engineers and executives, Chery will improve in areas such as quality control, manufacturing efficiency and supplier relations.
It is no secret that Chery and other Chinese automakers plan to compete in Europe and the US.
What few realize is that Chinese automakers are getting a lot of help from Western companies. European and American auto suppliers - and yes, Western automakers themselves - are providing the expertise and high-quality parts to help Chinese automakers compete overseas.
"The Chinese fundamentally lack products and knowledge, but they need to get into the market very quickly," says Michael Laske, president of AVL China, a division of engine designer AVL List of Austria. AVL designed an engine family for Chery.
Adds Frank Zhao, chief technical officer at another would-be exporter, Zhejiang Geely Holding Group: "A lot of foreign companies think Chinese domestics need to reinvent the wheel. That's not necessary."
Heart of the car
Chinese automakers "realize they can't compete without" the best engine technology, says Laske. AVL's business in China has taken off during the past three years, as more local brands look to export, he says. China now accounts for about 15 percent of AVL's revenue, and ranks third behind Germany and the US.
AVL's global revenue in 2006 was €537 million.
AVL competitor Ricardo also has many Chinese customers, including Shanghai Automotive Industry Corp. and heavy-duty vehicle producers such as FAW Group, says Lee Sykes, executive vice president and head of Ricardo Shanghai.
China accounts for 10 percent of UK-based Ricardo's activity worldwide. Ricardo's revenue for the fiscal year ending June 30 was £171.5 million. "Over the next three years, our plan is to triple our team in China," Sykes says.
Weak on safety
Safety systems are another area in which Chinese companies are weak; regulatory demands in China are less rigorous than in the US and Europe. Chinese automakers are using companies such as Autoliv of Sweden.
Autoliv supplies airbags, seat belts, steering wheels and airbag electronic control units to Chinese automakers.
Business with local automakers such as Brilliance China Automotive Holdings, SAIC and FAW will help push Autoliv's sales growth in China up by more than 50
percent in 2007, says George Chang, president of Autoliv China. Brilliance already has launched in Europe.
"Chinese brands are becoming an important part of Autoliv China's growth," says Chang.
Chinese automakers sometimes buy from a foreign company even when the component is available from a local supplier. Some Chinese automakers even advertise that their cars contain technologies provided by a foreign company.
"International companies ensure our product quality," says Great Wall spokesman Shang Yugui.
Says Vivian Zheng, a senior partner in Shanghai with Roland Berger Strategy Consultants: "The local automakers feel they need to use global service firms to buy some assurance and project credibility to the market."
Teams of Chrysler engineers are at Chery checking out every aspect of the Chinese automaker's operation, says John Felice, Chrysler's vice president for manufacturing technology and global enterprise.
"The engineers on each side need to understand what the customer needs are in the different markets we will sell vehicles in," says Felice.
That knowledge will be helpful when Chery starts to sell its own brand cars in those same markets.
Lan Lan, Luca Ciferri contributed
An article from the same source, but a little later in the year:
Chery: Big ambition or a pipedream?;
Tiny provincial automaker wants to win in Europe, US
BYLINE: Alysha Webb
SECTION: NEWS; Pg. 4
LENGTH: 1243 words
WUHU, China --
This small city in Anhui, one of China's poorest provinces, has little English-language education. So the families of many Western-trained Chinese engineers live in Shanghai, five hours away by train.
Nightlife in Wuhu amounts to karaoke at one of the town's two major hotels. Taxis and trucks share the road with bicycles and an occasional horse-drawn cart loaded with produce from the countryside.
Yet Wuhu, population 750,000, aims to be the car-export capital of China.
Chery Automobile Co., only 8 years old, is talking with major European distributors about selling its cars in Europe.
Chery has hired Italian design houses Bertone and Pininfarina to style models for export. Austria's AVL List and the UK's Ricardo will design engines that can meet European and US emissions standards.
The ambitious automaker also has signed a deal with American entrepreneur Malcolm Bricklin to ship cars built in China to US dealerships starting in January 2007. It plans to start selling cars in Europe in the same year.
Ludicrous, you say? A tiny provincial automaker wants to conquer Europe and the US?
Yes, it's a long shot. But a three-day visit here last month revealed much happening beneath the surface. Little-known Chery has a chance to realize its dreams, even though some of its engineers privately wonder whether it can meet its extreme deadlines to start sales in the West.
Here's why Chery could make it:
* Western-trained engineers are migrating to Wuhu, driven by a patriotic mission to build the Chinese auto industry.
* Highly competent suppliers from Europe and the US are quickly building or designing for Chery what it can't build itself: top-quality assembly lines, low-pollution engines and many other essentials.
* The central government in Beijing is supporting the company with bank loans and export credits.
While Chery has many strengths, pulling off the ambitious plan depends on strengthening its weakest link - mid-level management and workers at Chery and its suppliers.
They must banish ingrained bad habits left over from decades of a planned economy that emphasized high volume instead of high quality. If the first models fail to meet Western consumers' expectations, it could set Chery's export plans back by years.
"We still have a big challenge," said a Chery manager who has a decade of experience working in the US.
History of problems
Chery has a short history of turning out cars. Founded in 1997 by the local government, Chery's early models were problem-plagued, said a manager at a local interior trim supplier.
"They just wanted to start making cars. They weren't too concerned with quality," he said.
The cars couldn't be sold nationwide because the central government wouldn't grant Chery a license. A Wuhu government order to make Chery the city's official supplier of taxis saved the company from bankruptcy.
In 2001, Shanghai Automotive Industry Corp., partner of both General Motors and Volkswagen, became a part owner of Chery. This allowed Chery to piggyback on Shanghai Automotive's license to sell cars nationally. That breathed life into the small local automaker, said a trim supplier manager.
"Around 2002, Chery started to believe it could succeed as a bigger company," he said. "They started to buy better equipment and develop their own engines."
Last year, Chery sold only 86,567 cars, nearly all in China.
The company founded an r&d institute in 2003 that boasts 800 engineers. It has developed three- and four-cylinder engines on its own.
Intellectual property questions nonetheless dog Chery. GM charges that the QQ small car, Chery's best-selling model, is a copy of its Chevrolet Spark, also built in China. The case is pending.
Chery's strengths
A trio of Chery engineers with doctorates from US universities and more than 30 years of cumulative experience in the US auto industry are cautious about meeting Bricklin's 2007 deadline.
"We will play it by ear," said one engineer over coffee in a Wuhu hotel.
Chinese engineers returning from Europe and the US are one of Chery's strengths. About two dozen work at the company, and more are coming.
Chery started advertising for them in 2003 in the newsletter of the Association of North American Chinese Engineers. Nobody took the ad seriously at that time, said one of the returnees. Now they do.
Industry people who have met Chery President Yin Tongyao and Chery's other top managers have been impressed.
"Management overall is quite professional," said Paul Gao, a principal with McKinsey & Associates in Shanghai. "They have a strong can-do mentality."
Yin turned down repeated requests for an interview.
"The level of intent is absolutely clear," said an executive at one of the European engine design firms hired by the automaker. "Chery has its sights set on export."
Money flows to Wuhu
Money isn't a problem. The company is owned by the local government and favored by the national government. In March, Chery received an export credit of 5 billion yuan (€469 million) for overseas expansion from China's Export and Import Bank. The company also received a €225 million loan for r&d from the China Development Bank.
Many world-class partsmakers are supplying parts to Chery. Tower Automotive, Siemens VDO Auto-motive and TRW Automotive, among others, have plants in Wuhu. Delphi also is a Chery supplier.
Chery has purchased state-of-the-art production equipment for cars and engines, visitors say.
"The assembly line is brand new," said a Western supplier executive who has visited the plant.
"Manufacturing experts who have seen the plant say Chery must have spent $1 billion [about €774 million] on it."
The engine plant uses equipment from Heller Machine Tools of Germany among others.
Chery suppliers also use imported equipment. A manager at a local engine parts maker proudly showed off his Fata Group machine tooling equipment from Italy. Other machinery was imported from Switzerland, he said. The company also supplies Cummins Inc. in the US.
"I'm pretty optimistic about Chery's future in terms of exports," the engine parts manager said.
But his optimism faded as he examined the fit and finish on his new Chery Son of the East sedan.
"Look at this ugly welding," he said, pointing to a rough spot on the inside of the rear trunk.
At the top of the trunk door, the wiring leading to the light is exposed. "This looks really sloppy," he said.
Attention to those kinds of details - which can make the difference between success or failure in more mature markets - is where Chery slips up, said the engine parts manager, who worked in Europe for more than a decade.
He attributes the problem to the mentality left over from the days when lifetime employment was guaranteed and quality was not a concern. Workers still think that as long as something works, little things don't matter.
"It's not easy to change the thinking," he said. "Just meeting customers' needs is not enough. Chery has to surpass their expectations."
Another general manager, whose company supplies seats to Chery, figures that 80 percent of Chery's suppliers can meet international standards.
For the other 20 percent, Chery has hired Western professionals such as the US-based Harbour Consulting to raise their quality, he said.
"One of our important missions is to develop our [Chinese] suppliers," said one engineer.
For example, many critical powertrain components still are imported from Europe, he said.
Chery needs to be able to buy the same quality parts in China to meet its low-price goals.
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