China Car Times

Chinese media reports this morning say that Chery may well be on the look out for a respected European brand that is up for sale.

Chery have set themselves up as a major player in the self developed (i.e. Chinese brand) automaker in the past few years, going from buying old Ford UK production lines and rights to the Seat Ibiza Toledo in the late 90’s to developing some of the best looking Chinese cars in 2008.

Chery have excelled themselves at making cheap cars that look good, a stratergy that has worked well so far, however, it seems they wish to further themselves in the international market, and perhaps realize their Chery brand wont cut it for selling premium vehicles.

Since setting up an investment joint venture with the Isreali company, Isreal Corp, Chery have found themselves sitting on a pile of cash, 150 million USD to be precise, and a registered capital of 5 billion, Isreal corp reportedly invested 250 million into the deal. Chery are now investing heavily into R&D to make several upcoming models, including the Tiggo6 SUV, T2 series (a 3 door, 4 seater SUV), and an A6 sports sedan.

Chery’s Chairman, Mr. Yin, expressed that Chery is in its second phase of development, where it should become an international player, now that its status as a major domestic player is complete.

Media reports indicated that Chery could deepen its joint venture with Chrysler, or it could swing the other way and buy an established European brand, although no brands were mentioned, rumors have it that both Saab, and Volvo may well soon be changing hands. Could they have a Chinese future? Perhaps so.

The biggest issue with Chinese automobiles right now is overall quality. Its the small things such as ill fitting interior plastics, cheap plastics, and poor choice materials that lets down various marques, but Chery wants to rectify those problems according to Automotive News China:

SHANGHAI — Chery Automobile Co., long the fastest growing Chinese automaker, stopped growing in the first half of this year.

Can it still become a world-class automaker, a goal its president Yin Tongyao set late last year?

Yes. Actually, the company now has a much better chance to succeed than ever before.

Passenger vehicle sales in China reached 3.6 million units in the first six months, up 17.1 percent year-on-year. By contrast, Chery’s sales, about 208,000 units, barely changed from a year ago.

Chery is obviously losing market share. But that is because the company has put the quality of its products before their quantity and halted new model launches since October last year.

Chery was incorporated in March 1997. In August 2007, it became the first domestic automaker to produce 1 million units. That’s remarkable growth, indeed. But it also came at a cost.

While aggressively expanding production, the company compromised a key aspect of sustainable growth: product quality.

Fortunately, Chery’s managers realized that changes were necessary.

They know that without good product quality, Chery can only make a profit of about 500 yuan ($74) by selling a car, as Yin famously once said.

They also realized that without quality, the deal they signed with Chrysler LLP won’t lead anywhere.

To make its next new model, the A3 mid-sized sedan, a fine product, Chery has repeatedly postponed its launch. Meanwhile, with Chrysler’s request help, Chery is making consistent improvements to the vehicle that it plans to sell in the United States with a Chrysler badge.

Also, Chery’s joint venture project with Israeli investment company Quantum is well underway. The new venture mainly targets the international market.

Chery is also cooperating with more global suppliers, such as ArvinMeritor and Continental, for high quality parts.

True, Chery may be still a thousand miles from becoming a world-class player. But the company is making progress.

Chery put four new models into sales in the first nine months of 2007. But no new model has been launched since.

I expect to see its new product to come out of such a long waiting period with much better quality than its predecessors.

Chrysler has reportedly been making moves on Great Wall in a bid to cut back their massive losses in their home territory.

Chrysler and Great Wall signed a memorandum of understanding in the middle of June which if it leads to greater things, will see Chrysler products in Great Wall dealerships, and vice versa. The deal could also see Chrysler and Great Wall working together in various technological areas, previously Great Wall invested several billion RMB in a R&D center.

Since the Chery-Chrysler deal seems to have only produced a rebadged Chery A1 to date, Chysler seems to be looking for other cars to fill up its line up. The rebadged Chery A1, now named a Dodge Breeze, is going to be aimed at the South American market which will give Dodge a more competitive edge in those areas.

Gasgoo elaborates:

Shanghai, June 11 (Gasgoo.com) An insider recent said that the partnership talks between China’s Chery Auto and Italian carmaker Fiat has stalled now as the Chinese automaker’s requirements cannot be fully met. Their talks for a joint venture have made no progress since April.

It seems not so easy to reconcile the conflicts that led to the disruption of the talks. According to an insider close to the deal, Chery is now very determined to get the Alfa Romeo, which has been a part of the Fiat Group since 1986, and Fiat will not give up the partnership bottom-line of locally producing its Linea and Bravo cars in China if it aims to achieve the annual sales of 300,000 units.

However, neither Chery nor Fiat has confirmed this dilemma they are in now. “We are still in talks,” a spokesperson from Chery said diplomatically. “Premature news release will not help our coorperation.” Fiat also declined to comment on the talks. “China is Fiat’s important target market, and Fiat will establish a foothold there,” said Paolo Arpellino, Fiat Group’s chief representative in China.

In August 2007, Fiat and Chery signed a memorandum of understanding to build a 50:50 passenger vehicle joint venture and an engine supply contract, but the talks began to stall in early 2008 when Fiat pulled out of Nanjing Auto. In the joint venture, Chery and Fiat had plans to locally produce Fiat Linea, Bravo and Grand Punto, but Fiat cannot satisfy Chery’s desire for another model: Alfa Romeo.

From what we understood previously, the Alfa deal was already in the bag for Chery!