There are those who state confidently that China will own the worldwide car market within a few years (these people have been saying this for years — check out this post from three years ago where I rightly said NO WAY) and there are those who state it will never get there. My only qualifications are that I come from Michigan and I have represented a few auto and truck manufacturers and a whole slew of auto parts manufacturers, including many in or going into China. But like just about everyone else, I have a view, and mine is that China eventually will do well selling low end cars worldwide, but that it is not yet close to selling good cars in the United States. I spent seven hours in my car yesterday (driving back and forth to Wenatchee, WA) and there is no way I would have chosen a Chinese car for that trip. And it’s not just me.

I landed in Beijing last month with my wife and daughter. The first taxi in line was a very old VW. The VW driver started putting our luggage into his trunk when a Chinese woman came over and asked us in pretty good English whether we wouldn’t please take the taxi behind us (a much newer, but Chinese model) because she was going on a long trip with her family. My wife asked her why she wanted the one cab and not the other and the Chinese woman gave an embarrassed look, but said nothing. I explained to my wife that this woman did not want to go on a trip with her family in a Chinese car, but she was too embarrassed/nationalistic to say so. Since we were merely going to our hotel, it was no big deal and so we allowed the switch.

On that Beijing trip, I met with Bill Russo, a former Chrysler VP in China, now head of Synergistics Limited and, most importantly, a true expert on China’s auto market. One of the things Bill told me during our meeting was that the Chinese would rather buy non-Chinese cars but buy Chinese cars based on price. That has always been my sense, but since I mostly hang out with Chinese attorneys who drive Buicks and Toyotas (mostly), I am not going to claim to have a representative sample.

But the big question regarding Chinese cars is when they will make their mark outside China and Bill Russo just came out with an extremely thorough and thoughtful piece on his blog that says, “not yet.” The post is entitled, “The Path to Globalization of China’s Automotive Industry,” and it says that China auto must achieve various intermediary benchmarks before it is ready for the world stage. If you have an interest in China’s auto industry, this post is not to be missed.

A few weeks ago, I read a blog post from a Canada-US designer, Caroline Di Deigo, who traveled to China to, among other things, see the houses at The Commune at the Great Wall. She had been very excited to see these houses after having admired them in books, but upon seeing them up close, she was disappointed by their construction:

For several years I had been excited by images in architectural books of the houses at The Commune at the Great Wall, so this trip I made a detour from our group to see it for myself. The Commune at the Great Wall was developed by Zhang Xin between 1998 and 2002, when she commissioned 11 Asian designers each to design a house, situated in a rugged hilly location within view of the Great Wall. These houses, while privately owned, now function as a resort. In my opinion however, it is really a monument, or series of monuments, to design. At first glance it’s very impressive, with unique expressions of ‘house’, ‘home’, ‘dwelling’. On closer inspection though, I found them somewhat disappointing. Possibly due to their ultimate function, they lack much of a ‘residence’ feel, and seem a bit barren, very much like ‘public spaces’, vaguely ‘museum-like’. And to get really nit-picky, the quality of construction is unfortunately lacking, and from what one reads, certain of the designers were in fact quite disappointed with the implementation of their visions, as indeed I might have been.

Chinese cars are in many ways the same.

UPDATE: In his post, “Detroit, not Shanghai, is still the centre of the car universe,“Malcolm Moore, blogging for the Telegraph, agrees.

What do you think? Have Chinese cars arrived or are they three, five, seven, ten or more years away? When will a Chinese car brand have the reputation of Toyota, BMW or even Hyundai?

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  • dimfox

    It reminds me when we were buying refrigerators in late 80’s and early 90’s. There was a time we (Chinese people) would prefer any foreign brand over Chinese brand. Even we never heard of that foreign brand. (Do you ever wonder why so many Chinese refrigerators’ brands sounds wried in Chinese?)
    Now days most people don’t have that bias when buying refrigerators, or washing machines. But we still prefer Japanese brand when buying big screen TVs. (That’s the case for Chinese people in US too)

  • ecodelta

    Even if all engineering hurdles are surmounted, there remains great handicap for the penetration of high value/status Chinese brand products. That handicap is the CH political system.
    They may produce good cars, even good enough to compare with japan, korean or german cars.
    But they will always have to offer a lower price to get the product through, even if quality were the same with superb service. If there is no political evolution in CH, and something more.., there will be no Chinese Lexus brand, not even a Toyota or Honda.
    The same with motorbikes, no Suzuki or Yamaha.
    They will have no other option that to sell their products at lower prices to get them through…. that is another form of “The China price”
    Wish it could be other way, some Chinese brand products I have are not bad at all.

  • Pffefer

    Chinese cars have certainly not “arrived”. But the perception shared by you and many others, that Chinese just prefer foreign cars and would not buy Chinese cars is exaggerated. The best selling cars in China, I understand, are Chinese cars.
    I’d say the Chinese cars are 15 years away. That little Hyundai that people sneered at merely 10 years ago turns out to be much better than anything the Americans offer right now.

  • Tony

    There’s no guarantee of success. To give an example from another industry: the Chinese government has put a lot into China’s semiconductor industry, but right now its future doesn’t look bright — e.g. when was the last time SMIC made money? (EE Times had a recent article about the many problems of China’s semiconductor fabs — and I’d say in many ways it’s easier to be successful in chips than in cars).

  • another anon

    I don’t think its a matter of lack of Chinese ability. Chinese car makers could hire Korean, Japanese (although grudgingly), US, UK, French, Italian and German car experts as well as use plenty of no longer proprietary technologies (such as roll cages, ABS, air bags, firewalls, crumple zones) to produce at least average cars.
    But Chinese companies are so focused on low price that they use the absolute minimum of steel on frames, little or no roll cage, no crumple zones, weak air bags, poor welds or even bolting sections together, etc. and all of that is summed up by the disintegration of Chinese cars in EU and Russian car impact tests.

  • LoveChinaLongTime

    The driver of a QQ does so purely for the reason of price and being able to say “I own a car” to his/her buddies and parents.
    China has skipped a lot of what the rest of the industrialized world went through (growing pains?) such as the Beta vs. VHS Wars, evolution of luxury marques from economy ones (Toyota to Lexus), but has done so without the benefits of, IMO, the learning process that goes along with it. Will it work for them? Too early to tell.
    The best selling cars in China are Chinese cars because the majority of buyers can’t pony up yet for the BMW, Audi, Merc or Lexus. Nothing to do with patriotism.

  • I agree that Chinese cars are still far behind cars of foreign brand. Let’s say 10-15 years behind? But Chinese car makers are catching up very quickly, which reminds me of the household electrical appliance manufacturers. Over 10 years ago, most Chinese preferred a refrigerator or a TV of foreign brand. Today, most Chinese buy electrical appliances of Chinese brand. Because they are of good quality, good delivery and after-sale services, also, the price is competitive.

  • Thanks for the comments, Dan
    If you are “bloggerless in China” you can read my “Path to Globalization” article at http://tinyurl.com/q9ubaz

  • another anon

    @ Pfeffer
    Chinese prefer foreign cars but accept Chinese cars due to the low prices. Chinese salaries on average still aren’t that high, especially when it comes to auto purchases and especially when Beijing adds 25% to 45% in import taxes to any foreign brand even when that model is made in China.

  • JXie

    What China has, and Japan and Korea didn’t are,
    1. The domestic market size
    2. The likely availability of distressed but quality international assets and expertise.
    Both are well covered by Russo’s piece.
    One interesting question though is how real the electric cars are. If the published specs of supposedly upcoming BYD e6 is anything close to the real-world numbers (and Buffet and Munger aren’t senile), the future market size of internal combustion engine-base cars may be much smaller than today.
    BTW, ecodelta, CH is short for Switzerland. China is either CHN or CN.

  • Warren Buffet invested in a Chinese Car Manufacture, isn’it ? i think it can bring some thoughts to the topic.. Are we there yet? We’re close !

  • Not sure that this is true:), but thanks for a post.
    Joker

  • Leo

    “because the majority of buyers can’t pony up yet for the BMW, Audi, Merc or Lexus. Nothing to do with patriotism”
    I don’t know how it is in the U.S., but I know the majority of German middle class, the people who make BMW, Audi, Merc, have to do with a VW, Opel(GM), or Ford. I think your comparison is a bit over the top.

  • Nearly 10M cars sold in the domestic market and counting…
    I like what Jack Perkowski of “Managing the Dragon” (www.managingthedragon.com) fame has to say about all this — both in his book and the blog of the same name. You’ve basically got to examine two unrelated markets in China: the low-tech/lower-price market and the hi-tech/higher-price markets, which run in tandem.
    The above post makes mention of the premium luxury brands which, let’s say, are within reach of up to 300 million Chinese in the big cities, at most. What is often overlooked in all of this are the other, say, 800 million plus Chinese that would leap at the chance to buy a dirt-cheap (for a North American) Chery or Geely because that’s well within their range.
    Perkowski further goes on to compare a 100 USD note to a 100 RMB banknote.
    To a foreigner, 100 RMB divided by eight is approximately 14 bucks. Not so to a PRC citizen! To them, 100 RMB is like 100 US, and what would be considered to be a “cheap” car for an American/European is not “cheap” to a Chinese living in some Western second-tier city. The the 800 or so million “other” Chinese aspiring to a coastal city-style lifestyle, a QQ is like a Roman chariot.
    I travel all around Eastern Europe (countries outside of the EU), and I see Cherys and Geelys proliferating on the streets of Chisinau, Moldova and Kiev, Ukraine for example, selling like hotcakes. Why will China’s auto industry trump Detroits in the coming half-decade? Think about the rest of the world who thinks like less-affluent Chinese do.

  • Chinese autos won’t “arrive” in 1st world markets until 10 years AFTER Chinese auto companies become the employment destination of choice for world-class designers. Sure, you may see BYD in the US, but we’re at least 20 years out from it making a Hyundai-type statement.

  • JXie

    BYD e6 supposedly can get 250 miles out of one charge (5 passengers) and a fast charge can get 50% up. Now that’s a game changer if the numbers are real. Maybe driving a BYD seems like a joke to you now, just remember buying Apple products once was considered a joke too. 20 years is a long time — 20 years ago China could barely make TVs and washing machines. If all BYD can achieve is being something like today’s Hyundai in 20 years, its vision of becoming the largest car maker in the world by 2025 certainly is a joke.
    If you go to Buenos Aires, one interesting thing about cars there is you see a lot of old luxury cars, but very few new luxury cars. New cars are almost all cheaper ones. Folks in Buenos Aires were almost in “first-world” living standard once, and all of sudden they were poorer than their neighbor Brazil whom they looked down at. At the end of the day, if you can’t produce anything that others want, the “first-world” living standard will eventually go, and likely very quickly.

  • another anon

    @ Adam
    “I travel all around Eastern Europe (countries outside of the EU), and I see Cherys and Geelys proliferating on the streets of Chisinau, Moldova and Kiev, Ukraine for example, selling like hotcakes. Why will China’s auto industry trump Detroits in the coming half-decade? Think about the rest of the world who thinks like less-affluent Chinese do.”
    Those countries also don’t do crash safety tests on cars. In the ME, people refuse to buy Chinese cars if they can afford anything else, even a Russian car. Chinese brands have been refused in Russia and the EU because Chinese cars shatter like glass during standard crash safety tests.

  • the running man

    The Chinese sell motorcycles in the US and it could be a bellwether for auto issues to come.
    Here’s one article on the subject:
    http://thekneeslider.com/archives/2005/04/26/motorcycles-from-china/
    I particularly like the comments, in which the ones singing the praises are the dealers. (I found Dan Diehl’s comment informative).
    Another quick internet search turned this up:
    Q. Are Chinese motorcycles any good and are they easy to get serviced and repaired.are parts easy to obtain?
    Short Answer:
    NO,not good—not when compared to the alternatives.
    NO,not easy to get serviced/repaired
    NO,not easy to get parts
    People will buy the cheapest household goods-but cheapest vehicles? In which they entrust the lives of their families? Personally I wouldn’t drive a Chinese Shmercedes if it was given to me free.

  • Gerald

    No, Chinese cars have not yet arrived. You are right in that anyone who can afford to buy a foreign car, will. And there are good reasons for this – better engineering, safety, reliability, etc. While Chinese automakers have made strides in these regards thanks to knowledge and technology gained from their foreign JV partnerships, they are still a ways away..
    I should also add that it’s going to be very interesting to see how the GM bankruptcy and sale of Opel/Vauxhall will affect the Shanghai-GM joint venture.

  • Ruud van Winden

    A long way to go indeed, and branding / image will play an increasing role when income goes up.
    So for now, the average Chinese brand is fine, requirements will go up along with the disposable income. Quality will also go up along the way. Hopefully the branding exercise is not missed in parallel, would be good to invest a bit more in that area. This will help to get into the “first world” markets in 10 years time.
    Everyone, including Geely, can make a high quality car at some point in time, question is if they can sell it with their badge/name and a nice margin? Probably not.
    China has yet to set their “concept” in order to define / curve their part of the market, at the moment manufacturers try to be everything for everyone, this does not work.
    As for The Commune, the aim was design, it looks good as many things in China. However the build quality equals any SOHO project…, a very good fit with the market want; a clean, nice looking investment object for the short term. Whatch these buildings in 15-20 years time 🙁

  • Gerald

    I agree with Ruud in that branding/image also plays a huge part in car buying decisions (or aspirations, to be more accurate) here. In fact, this ties in with your post regarding China Retail so I won’t bring repeat that discussion regarding brand names, local vs. foreign brands, status symbols, etc.

  • orhun

    Sorry, but all I can think about is the pollution. It’s scary.

  • Clarissa D.

    @Orhun,
    Yes, but you are not being fair. We had full opportunity to create our own car cultures. Isn’t China entitled to the same?

  • I think the Chinese manufacturers need to consolidate before they can focus on quality.

  • DT

    Give me a break. China is at least another 5 years away from producing a good car. Probably more like ten.