China’s cars move into overdrive

Should the West be expecting a flood of cars from China this year? Perhaps not. But, according to some, expect to see more than a handful of made-in-China cars travelling Europe’s roads by 2007. Alysha Webb reports

When Korea’s Hyundai brought cars to Europe in the early 1980s, they were bashed as being backward technologically. Japan’s Toyota had good technology, but boring design.

Fast-forward to the end of 2005. The Hyundai brand held 2.1% of the 15.22m unit European Union market, and its affiliate Kia brand 1.6% of the market. Kia was one of the fastest growing brands in Europe. Toyota, including its Lexus luxury brand, claimed 5.4% of the market.

So automakers can be forgiven for feeling some dread when three Chinese brands had exhibits at the Frankfurt Auto Show in September.

European distributors have aggressively sought out China-made cars, and some Chinese car makers are themselves looking to export to Europe.

“It has proved to be the case that very cheap, or high value, cars have a very ready market in Europe,” says Graeme Maxton, managing director of Autopolis Asia, a Hong Kong based consultancy.

The export of Chinese brand cars to Europe got off to an ominous start in Frankfurt. At the time of the show, numerous European media ran photos of a test dummy in a Landwind sports utility vehicle from China’s Jiangling Holding Co. The dummy’s head was crushed after a crash test in Germany.

Follow up reports pointing out that the crash test was not the standard European Union crash test - which the distributor claimed the Landwind passed - did little to quell criticism. Neither did reports that the Landwind was imported under rules applied to cars being built by hobbyists for personal use, and therefore didn’t have to meet the same stringent safety standards as most auto imports.

“The case could damage the reputation of all other Chinese cars to come,” said European Union Parliament member Ari Vatanen of France, a former rally car driver who was speaking to Automotive News Europe.

Or perhaps not. “It is still open,” says Maxton: “Most consumers are not aware of what happened with the Landwind.”

In any case, the Landwind’s Dutch importer, Dutch rally racer Peter Bijvelds, seemed unfazed. He reinforced the frames of the 700 Landwinds sold last year.

This year, he is importing an improved Landwind model, he says. “We already performed the crash test and we will be at a good level of safety, (though) maybe not the highest level.” At 16,000 euros per car including VAT, people seem willing to accept that. “We had an opening in France last week and people were very enthusiastic,” he says.

At the Frankfurt show, Shenyang Brilliance Jinbei Automobile Co showed one of its Zhonghua full-size sedans. And Geely Automotive Holding Co, a privately-owned car maker in east China, brought several of its cheap and cheerful small cars.

Chery Automobile Co is another Chinese company aiming to export to Europe, although it did not have a model in Frankfurt. Based in the central China province of Anhui, Chery is currently talking to European distributors, and should make a decision soon, says a manager in Chery’s international sales department.

Chinese cars looking to export to Europe face a common hurdle - they cannot currently meet European safety or emission standards. That is changing as Chinese automakers upgrade their technical abilities, or hire foreign firms to help.

Bijvelds altered engines on the Landwinds he imported last year to meet EU standards. But this year’s model has petrol engines that can meet Euro 4, he says. He is still searching for a Euro 4-compliant diesel engine.

Gibraltar based Euro Motors is the importer of the Zhonghua M1 mid-sized sedan. The M1 was designed by Italy’s Pininfarina especially for export. The engines will still have to be altered to meet European emissions standards.

“We think it will appeal to European tastes,” says Lu Qiang, Brilliance public relations manager.

Market forecaster CSM Worldwide figures Euro Motors can sell a few thousand Zhonghuas in 2006 in the Netherlands and a similar volume in Germany.

Brilliance itself isn’t chasing high-volume exports. “Selling the Zhonghua in Europe is a symbol that our cars are good enough for export,” says Lu. “We don’t have plans to export to America right now. But this will allow American consumers to see that our cars are good enough.”

Chery is developing models especially for export. It has hired Austrian engine company AVL List GmbH to design its engines. Two Chery models can already meet European emissions standards, says a Chery manager working on the issue.

“We are going to put much more effort in the safety area than the Landwind did,” he says. Chery will test its cars at 56 kilometres per hour and 64 kilometres per hour, meeting several different EU safety test requirements, he adds.

As for the car’s design, Chery used Italian automotive design houses Bertone and Pinanfarina to craft its export models.

“We will likely start exporting two models to Europe in 2007,” says the manager.

Geely is more circumspect about its European export intentions. Company chairman Li Shufu visited the US in January for the Detroit auto show. He brought along one Geely model, a small four-door sedan. Geely is focusing on exporting to the US, hopefully beginning in 2008. Chinese engineers are doing all the work to ensure the cars meet US emissions and safety standards.

“We are already doing research in European emissions standards. We don’t know when we will be able to enter the European market,” says Li.

Opinions on when Chinese cars will represent a real force in Europe vary widely.

Making an impact

“I don’t think we will see them make a significant impression in the next 10 years. I think if we look at the experience of the Japanese and Koreans it can be instructive. It took the Japanese 30 years to get where they are now, and the Koreans have taken almost as long,” says Mark Fulthorpe, CSM’s London based director of European Forecasts. But the Chinese could study Toyota’s example and accelerate the process, he says.

Others think Chinese cars could find their niche in Europe much sooner.

“I can see people saying, ‘OK, it’s good enough and the price is right,’” says Michael Dunne, President of Automotive Resources Asia, a Shanghai based consultancy.

Says Jan Borgonjon, President of Beijing based InterChina Consulting: “Spain, Portugal, and Greece might be relatively more accessible. The consumers are quite open to new cars. There will be a market for Chinese cars. If they have the right quality and price they will be successful.”

But Borgonjon figures it will take around five years for a Chinese brand to develop the brand name and a good distribution network.

There is another side to the made-in-China auto equation, one that Japan’s Honda Motor Co is already exploring. In 2005, Honda exported 10,000 Jazz hatchbacks from its plant in Guangzhou in southern China to Europe. This year Honda aims to export 25,000.

The cars are sold in half a dozen countries in Europe for the same price as those produced in Japan. In Germany, for example, a Jazz will set you back 13,000-15,800 euros. The cars met all European safety and emissions standards when they left China. The first batch of 146 cars went to a German port, part of a strategy to show picky German consumers that a car made in China is as good as one made in Japan.

“We are confident of the Honda quality standard,” says Masaya Nagai, spokesman for Honda Motor (China) Investment Co.

European automakers don’t seem to be looking over their shoulders, dreading the arrival of cheaper Chinese cars on the market - at least not if Jean-Martin Folz, CEO of French automaker PSA Peugeot Citroen, is any indication.

In China in January for the launch of the Peugeot 206 sedan, Folz said Chinese automakers in Europe “will be a threat someday, but when? I am not sure of the answer. I don’t feel this is an immediate concern”.

It’s taken the Japanese until the last five years or so to really tune into the idea that, for European consumers, they need to have a different design language. The Japanese small cars would have appeared very utilitarian compared to their euro equivalents in the 1980s and 1990s. It took them a while to realise diesel was the powertrain of choice in Europe.

Alysha Webb is a business journalist based in Shanghai.