U.S. drive stalls for Chinese automakers
It's been several years since China jolted Detroit with plans to crack the U.S. car market. So far, the effort isn't very convincing, writes Fortune's Alex Taylor III.
(Fortune Magazine) -- First there was serial entrepreneur Malcolm Bricklin, who, building on his experience importing Subarus and Yugos, promised to bring Chinese cars to the United States by 2007. But Bricklin's deal with Chinese automaker Chery fell through and Chery linked up instead with Chrysler to build Chinese Dodges.
Now comes Bill Pollack, a former Cisco Systems and Bell Labs executive who says he has struck a deal with a Chinese automaker to sell an SUV and a pickup here as early as 2008. He calls his company Chamco Auto (short for Chinese-American).
A newcomer to the entrepreneurial racket, Pollack doesn't have a trail of angry investors behind him like Bricklin did. But his designs on the market seem equally suspect for a host of other reasons.
Let's start with Pollack's Chinese partner: Hebei Zhongxing Automobile Company, or ZXAuto for short.
Unlike Chery, the most successful of the stand-alone Chinese automakers with a reputation for building stylish small cars, ZXAuto isn't exactly a household name in China. The company sold 5,550 cars in the first six months of the year -- a fraction compared to Chery's 207,000, according to China Automotive Report.
Just as telling: industry observers dismiss ZXAuto's vehicles as mere knockoffs of old Toyotas.
Next, consider Pollack's lack of auto industry experience.
His official company bio trumpets his "wealth of high-level executive leadership" in the telecommunications industry (not to mention his status as a "world-class tournament bridge player"), but is noticeably silent on all things V8-related.
True, there are some auto industry veterans in top management at Chamco, but others are industry rookies. The company's vice president of special projects, for instance, is a publishing lawyer. The company's vice president of quality control once worked for Lucent Technologies.
Finally, Pollack's pitch to prospective investors gives new meaning to "blue sky." He promises to sell 55,000 vehicles this year in Mexico, quadruple that number in North America in 2008, and hit 475,000 sales in 2011 -- more than established brands like Hyundai and Mazda sell today.
Pollack also expects the market value of his company to expand four-fold over the same time period. Dealers who invest in the company, he claims, can expect a $300,000 investment to mushroom to $3.7 million in 2011 using a "conservative" price/earnings multiple.
Sounds like Pollack thinks he's discovered another Google.
The two vehicles that Pollack hopes to sell in the U.S. are a pickup truck and an SUV, currently marketed in China as, respectively, the "Landmark" and "Grand Tiger." Each will carry a base price of $13,250. Even at that price, Pollack promises dealers a gross profit of $1,650 per vehicle.
A year or so after the Landmark and Grand Tiger launch, Pollack expects to roll out entry-level sedans and crossovers, which will be built at a new ZXAuto plant currently under construction in China. By 2009, he also expects to move production of the Landmark and Grand Tiger to a new plant in Baja California.
Pollack's plan is certainly ambitious. Sensible is another question.
Assuming the Chinese vehicles can be engineered to meet U.S. safety and emission standards, Pollack faces enormous challenges in manufacturing, distribution, sales and service that would drive strong men to drink.
He gets only one chance to get it right in the current environment. Chinese products are under a cloud already for safety and health reasons. And the competition for consumer dollars is fierce.
Pollack should be mindful of Hyundai's disastrous beginnings. In 1986, its first year in business, the South Korean carmaker followed a strategy similar to Chamco's and sold low-quality vehicles to high-risk consumers. But when the vehicles broke down, their owners simply defaulted on their loans rather than pay for their repair. It took Hyundai more than a decade to recover.
If Chamco crashes and burns, the Chinese will eventually find their way into U.S. car lots. They are too smart and work too hard to be held back for long. But their first foray into the U.S. market should be substantial and well-financed -- not harebrained like Pollack's.
For a model, the Chinese need only to look at what Toyota did back in the 1950s when it finally got serious about the U.S. market. After discovering that Americans didn't have much appetite for its flimsy cars, the Japanese company withdrew until it could reengineer them for local driving habits.