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Shanghai Surprise

With the Big Three automakers at a crossroads, the largest exporter of consumer goods to America is ready to take the wheel. Will your next car be made in China?

Author Jim Gorzelany

China’s Chery A1

THE BIG THREE AUTOMAKERS—GeneralMotors, Chrysler and Ford—are in crisis mode. Blame money woes, poor planning, topsy-turvy oil markets and the media, spilling ink by the barrel to write their obituaries. All three screwed up to varying degrees, and now they (and by extension, we the people) are paying the price, right? But as the Big Three wobble on their heels like stricken prizefighters, China—floating like a butterfly of free enterprise—stands ready to export the most American product of all to America itself: cars.

And they’re well-positioned to make the move.

After the United States, China is the second-largest automotive market in the world, and its supremacy in manufacturing and exporting low-cost goods is unquestioned. Chinese automakers have already broken into far-flung markets across the globe—in Russia, the Ukraine and Venezuela, for instance—but as China prepares its sales pitch for the U.S., the question becomes, Is America buying?

“It’s definitely not a matter of ‘if,’ but ‘when,’” says Lonnie Miller, director of industry analysis for the automotive research company R.L. Polk & Co. Expect a wealth of compact cars and SUVs, with price tags starting around $8,000 and brand names like Brilliance, BYD, Chery, Changfeng, Hebei Zhongxing and Great Wall.

Still, the road to the American market is a tricky one to navigate. In 2004, automotive entrepreneur Malcolm Bricklin (who was responsible for bringing both Subaru and Yugo to America) formed a company called Visionary Vehicles to import low-cost cars from China’s Chery Automobile Co. Despite a few well-publicized auto show appearances, the partnership eventually dissolved, and the parties ended up locking horns in court.

In 2007, Chery formed a strategic partnership with Chrysler, but that deal fell apart last December, before a single unit shipped. This year a company called Chamco (which stands for China America Cooperative Automotive) planned to import small SUV and pickup truck models from China’s Hebei Zhongxing Automobile Co., but the venture—ahem—stalled.

The first automaker likely to pull up to the curb stateside is BYD, a company better known in Asia for manufacturing batteries. BYD (which stands for “Build Your Dreams”), has the built-in advantage of a partnership with Warren Buffett’s über-powerful Berkshire Hathaway. Plus, they wowed the crowds at the 2009 Detroit Auto Show with a plug-in hybrid F3DM sedan and the all-electric e6 crossover SUV. BYD claims the F3DM can run for 60 miles on electric power before its gasoline engine kicks in (20 miles further than GM’s vaunted Volt). The e6’s range is 249 miles, and it has batteries that take a 50 percent recharge in 10 minutes.

Standing in the company’s elaborate display area in Detroit’s Cobo Center in January, Wang Chuanfu, chairman and president of BYD, said the company hopes to sell cars in the U.S. starting in 2011. Asked whether the automaker would ever consider setting up manufacturing facilities in the U.S., he replied, “when it is appropriate.”

Brilliance Automotive also brought a sampling to the Detroit show. Though executives there say they have no plans to export— yet—the company showed off four models: the M2 sports sedan, the M3 sports coupe and the FRV hatchback, as well as the midsize M1 luxury sedan, complete with a beverage cooler and Italian leather interior.

Aside from the obvious question of whether or not U.S. consumers will warm to the idea of buying a car that’s made in China—a country Americans generally associate with the production of cheap trinkets—experts worry that the first such models to hit our shores might not, in fact, meet our strict safety standards.

What’s more, suspicions of cheap construction might not be that far from the truth: According to a 2008 J.D. Power Initial Quality Study, the Chinese industry average for problems recorded per hundred vehicles was nearly twice that of cars sold in the U.S. Many Chinese models have also performed dismally in well-publicized safety tests conducted by independent agencies in Europe and elsewhere.

“The first challenge for Chinese automakers is complying with U.S. emissions and safety regulations,” says Tim Dunne, J.D. Power and Associates’ director of Asia-Pacific market intelligence. “And this is a big job. Besides the regulatory hurdles, the vehicles will have to meet America’s relatively high expecstations for quality, dependability, and service and parts availability. On top of that, a Chinese-branded automaker would have to build its own distribution and dealership network in the U.S., which is huge.”

The simplest way for a Chinese automaker to gain a foothold in the U.S. market would be by partnering with an already-established third-party automaker that would import and sell cars under its own domestic nameplates as a way to fill gaps in its current lineups, the way Chery tried to do with Chrysler. “An established brand carries familiarity and comfort among consumers,” Miller explains. “It’s the smart choice.”

There’s also the prospect that one or more Chinese companies will get a head start by essentially, well, buying American. Ford has reportedly been shopping the Volvo brand to potential suitors, the Chinese among them. GM is looking to unload its underachieving Hummer and Saab brands to raise capital. It’s a buyer’s market, and the Chinese have their checkbooks out.

Still, some experts are dubious. “A Chinese company has to ask itself, ‘Why do I think I could do better than GM or Ford at making this a profitable business?’” Dunne cautions. “The question is whether they would be better off spending $4 billion buying a brand or using the money to develop their own products?”

Where some see crisis, others see opportunity. For the strapped American consumer, an $8,000 car might not be such a bad thing.

Your Mileage May Vary

Although Chinese cars reportedly have suspect safety standards compared to those built in the United States and Europe, their fuel efficiency standards are far ahead of ours. The fact is not a single gas-powered car assembled in the U.S. would meet China’s domestic standards, which this year rose to a whopping 43 miles per gallon. The equivalent current average in America is 25 mpg.

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