Made in China: Here Come the Really Cheap Cars

Chinese pirate companies have long been accused of illegally copying easy stuff like shoe polish and digital movies. Now General Motors says a Chinese firm knocked off an entire vehicle–and Americans could soon start buying its cars. A unit of GM last month filed a lawsuit in Shanghai accusing Chery Automobile Co., the Chinese automaker, of filching production-line blueprints for a compact car, the Chevrolet Spark, which GM says cost “hundreds of millions of dollars” to develop. Chery’s car, called the QQ, does indeed look like an identical twin to the Spark and comes in candy colors designed for Chinese women drivers. The main difference is QQ’s $3,600 sticker price, a third less than Spark’s.

GM has not revealed how it thinks Chery obtained the plans. But since Chery was once partly owned by GM’s Chinese joint-venture partner, Shanghai Automotive Industry Corp., many suspect that GM’s comrades passed along trade secrets. Regardless, Chery plans to build on its success at home to become the first Chinese automaker to crack the American market. It revealed plans to offer five models last week, including an SUV, at costs below anything riveted together by Detroit’s Big Three. It has teamed with a legendary partner–Malcolm Bricklin, who brought the Subaru to America in the 1960s. Bricklin describes Chery as “ambitious like crazy,” and his New York–based firm, Visionary Vehicles, plans to import up to a quarter of a million Cherys a year starting in 2007.

Chery has already done crazy things to China’s auto market, which in turn could have a huge impact on America. The reason is overcapacity. Although executives in Detroit would drink windshield-wiper fluid through a straw for the roughly 15% growth in car sales that China saw last year, in China that increase might be too slow to keep up with production. Foreign firms like GM, Volkswagen and Ford have invested billions of dollars in China to make far more cars than the market can absorb. Last year Chinese consumers bought about 2.2 million cars, and assembly lines in China should be able to make up to 8 million vehicles a year by 2010, even though the estimated market will be half that. As a result, carmakers have cut prices on some models by up to 30%. Profit margins are razor thin and shrinking.

The result one day could be a huge surplus of Chinese-made cars looking for markets elsewhere. Chery aims to lead the way. Americans in the 1980s turned up their noses at the ultracheap Yugo, which Bricklin introduced from Yugoslavia, and Chery still has to meet U.S. safety and emissions standards. The real threat will come from foreign makers in China with nowhere to sell their cars. “If they can compete on price, Ford and Nissan will likely start exporting” to America within a decade, predicts Eric Harwit, a professor at the University of Hawaii who researches China’s auto industry. The Cherys you’ll soon see in car lots could be the vanguard for Detroit’s own made-in-China cars. –By Matthew Forney/Beijing