China Autos: Chery Keeps Accelerating

The mainland's No. 1 domestic carmaker is grabbing market share at home, growing fast abroad, and expanding its roster of alliances with Western companies

More and more Chinese are giving up their bicycles in favor of cars, and no company has benefited more than Chery Automobile. The 10-year-old Chery is China's most successful domestically branded auto company. From its base in the central city of Wuhu in Anhui province, Chery has grown to become a major player in the expanding Chinese passenger vehicle market and now holds a 7.5% market share. That makes Chery No. 4 overall, behind Volkswagen's joint venture with First Automotive Works, General Motors' (GM) partnership with Shanghai Automotive, and another Volkswagen joint venture, Shanghai Volkswagen. Chery is gaining momentum, with its share up 0.4% in 2007.

And Chery is not just sticking to China. It has expanded aggressively overseas, with its initial focus on developing markets including Russia, Ukraine, and the Middle East. Last May the automaker announced a joint venture to produce cars and SUVs with Israel Corp., an Israeli holding company that will invest $225 million. In August, Chery signed two agreements with Fiat, one to sell at least 100,000 units of Chery engines annually to the Italian company, the other a memorandum of understanding to establish a joint venture to manufacture Fiat and Chery models, including Fiat's Alfa Romeo, in Wuhu.

Chery has a big U.S. partner, too. On July 4 last year Chery signed an agreement to co-produce economy cars with Chrysler, and on Dec. 18, Xinhua, the official Chinese news agency, reported that Chrysler would start selling Chery-made A1 sedans under the Dodge brand in Mexico "very soon." "They could be a complement to each other," says Mei Songlin, general manager of J.D. Power's China office. "Chery is very good at producing compact cars, while Chrysler needs a partner to have breakthrough in the compact car market."

A Factory in Iran

The Chrysler alliance is starting small, with Chrysler selling the Chery-made A1 under the Chrysler brand, Dodge. "This will help accelerate Chery's entrance to the international market," says Jin. He says that the two companies will focus mainly on mid-level and economy cars. "In the future, our cooperation may use the Chery platform to produce a variety of styles with both Chery and Chrysler brands," he says. Chery is counting on such deals to fuel faster growth at home and abroad.

Founded by five Anhui state-owned investment companies in 1997 with a registered capital of $211 million in 1997, the company estimates it sold 393,000 vehicles in 2007, 25% overseas and the rest in China. With overseas sales topping 110,000, Chery's business outside China more than doubled last year. The company opened a factory in Iran in 2003, a plant in Russia in 2006, and a plant in Egypt in 2006. By 2010, "we expect our total sales volume to reach 1 million," says Chery veteran Jin Yibo, assistant general manager.

Chery is also trying to boost its green credentials. On Oct. 19 it announced a strategic cooperation with state-owned oil company Sinopec to develop more environmentally friendly vehicles and fuel. Chery has already established an automobile engineering research institute inside the company's industrial park in Wuhu to develop hybrid cars. And according to Jin, Chery plans to launch hybrids soon and is developing diesel engine products.

Building a Service Network

Certainly Chery has a lot to learn about doing business outside China. "The overseas markets and their sales environments are far more complicated than we have in our domestic market," Jin admits. "In overseas markets, service levels are what customers pay closest attention to. No matter what country we enter, we must make sure that our service network is good, and only then will we begin to introduce cars. We have to develop step by step."

There are plenty of rivals taking aim at the Chinese market, but Jin insists Chery executives aren't worried. "We have been facing fierce competition since the day we were established," he says. "So our people can bear more difficulties than others. Our group is very good at struggling. Chery people are very persistent."

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