Monday, June 4, 2007

Chrysler needs a small car, but not from Chery

James B. Treece is Asia editor of Automotive News.


James B. Treece
Automotive News
June 4, 2007 - 1:00 am

Chery Automobile Co. has resumed talks with the Chrysler group about building a small car in China for sale under the U.S. carmaker's badge. Talks had been suspended during DaimlerChrysler AG's sale of the Chrysler group.

Expect Chery to say that the conditions of the deal have changed and to seek some form of sweetener from Chrysler. It's a common bargaining tactic.

Chrysler boss Tom LaSorda should counter that he's canceling the proposed deal. It was a bad deal before. If anything, Chrysler's separation from Daimler makes it even worse.

I understand that Chrysler needs small cars to compete in a market where gasoline prices are high and possibly headed higher. But Chery is not the company for the job.

Headaches ahead

Chery has never built a car that meets U.S. regulations or customer expectations. Getting such a car out of Chery's factories and into U.S. dealerships is a migraine headache waiting to happen.

Let's pretend that Chrysler had blueprints for a competitive, fuel-efficient small car that it could simply hand over to Chery. (You don't really believe that, do you?) The U.S. carmaker would have to dispatch a battalion of engineers to China for months, at least, to teach Chery how to build it.

They would have to instruct Chery in manufacturing techniques, quality control and a host of other skills. For example, automotive executives in China tell tales of Chery or its suppliers switching materials without warning. That can turn an instrument panel from acceptable to reject-grade overnight.

At the 2005 Shanghai motor show, the license plate on one of its concept cars fell off. The Chery executives, busy glad-handing foreign distributors hoping to sell Chery cars outside China, failed to notice and reattach it.

Chery's quality has made great strides in recent years, even since that show. But the company isn't ready for prime time yet.

Chrysler doesn't have the time or resources to devote to teaching Chery how to make a car that's sellable in the United States. But even if it did, should it?

If the deal goes forward and the car turns out to be a lemon, Chrysler, not Chery, will get a black eye.

If the car is good, Chery will spend five years learning about the U.S. market and U.S. dealers at Chrysler's expense. And I do mean expense. After five years, Chery could walk away from further deals with Chrysler, sign up its own dealers and - bingo - Chrysler would face another competitor it doesn't need.

Who is second?

And it won't be the only one. No major automaker wants to be the first to import a car from China, but several would be willing to be second or third.

If Chrysler-badged Cherys come to the United States, how long will it be before General Motors starts shipping cars from Shanghai to America? Last month, GM showed possibly the best-looking Buick in years at the Shanghai show. Gossip has it that GM already is doing studies on possibly exporting China-made Cadillacs.

I predict GM will start exporting cars from China to America anywhere between nine months to a year and half - after someone else goes first.

If Chrysler just needs a low-cost car in that smaller-size segment, why not turn instead to someone else? Mitsubishi Motors Corp., a one-time Chrysler partner also now free of Daimler managers, could fill the bill. Or Chrysler could call Suzuki Motor Corp., which makes excellent, fuel-efficient small cars and has considerable management experience in working with other carmakers. Or someone else.

Of course, Cerberus Capital Management, Chrysler's new owner, may not care whether this deal hurts Chrysler five years down the road. Who knows whether its plans for Chrysler even extend that long. But LaSorda should care about what happens then and about the cost today to make it happen.

Chrysler should buy a small car from an experienced, proven competitor. It ought to avoid spending its time and engineering resources turning Chery into such a competitor.

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