Europe to Test-Drive Chinese SUV

Cars' Low Prices and China's Quest for Overseas Markets Fuel Export Push

ERP The dealers call impatiently from France, from Italy, from Moldova. They have heard that a Chinese-made automobile, the first to land in Europe, is a third cheaper than anything on the market. When will the ship arrive?

With each call, Peter Bijvelds swells with vindication. On this continent defined by BMW, Renault and Mercedes, he has bet that he can interest Europeans in the Landwind, a sport-utility vehicle made in China at a factory owned by the Communist Party government. The first 200 vehicles reached the Belgian port of Antwerp on July 4. He has already sold the lot, plus 100 more.

"You cannot compare it to a VW or a BMW," said Bijvelds, president of LWMC Ltd., Landwind's sole European distributor. "It doesn't have a high-power engine or the most modern suspension. But for the money, you get a hell of a lot of car."

The outcome of this venture could influence the global auto industry and China's role in the world economy. The Landwind is among the first in a wave of Chinese-made cars reaching Europe this summer, part of China's quest for overseas markets. The bid by the Chinese oil company CNOOC Ltd. to take over Unocal Corp. is the clearest sign of this "go out" strategy, but the migration of its own companies overseas is largely about bringing goods to new consumers: Chinese factories, long focused on churning out low-priced products, are seeking to become recognizable brands.

China's global reach has already reshaped the home appliances and electronics sectors. This year, Lenovo Group Ltd., closed its $1.75 billion deal to acquire International Business Machines Corp.'s personal computer business. The Chinese television manufacturer TCL Corp. purchased the French company Thomson, claiming the rights to the RCA logo. A consortium led by the Chinese home appliance giant Haier Group is pressing to buy Maytag Corp. TV maker Hisense and telecommunications equipment giant Huawei Technologies Co. are expanding aggressively with their own brands.

Now, the same trend is emerging in the auto industry. Last year, Chinese carmakers exported only about 100,000 vehicles, mainly to Southeast Asia, Africa and the Middle East, according to Frost & Sullivan China, a Beijing-based research firm. The foray into Europe is the first test of the world's richest markets by Chinese automakers. Last month, Honda loaded a ship near the southern city of Guangzhou with cars made at its factory there, sending them on to Germany and Italy. Brilliance China Automotive Holdings Ltd. plans to sell sedans in Germany this fall. Chery Automobile Co. Ltd. -- which has pioneered small sedans that sell in China for as little as $4,000 -- has announced plans to begin sales in the United States in 2007.

"I just look at the Chinese and I see how fast they are moving on the international scene," said automotive consultant Maryann N. Keller. "They're taking the Japanese plan for national development and compressing the time. The U.S. has historically provided the bulk of the earnings for pretty much every auto company in the world. I don't think there is any doubt that by 2012 we will see plenty of Chinese-made cars in the United States."

These developments are occurring as General Motors Corp. and Ford Motor Co. struggle with flat prices and diminishing profit. An hour of assembly line labor costs about $55 in Detroit and about $30 in Germany. In Poland, where General Motors has been shifting work, the average laborer earns less than $5 an hour. In China, wages are about $1.50 an hour.

But many experts are skeptical that Chinese companies can become major auto players in the United States and Europe. Car buying remains emotional terrain, and it could be difficult to persuade motorists to entrust their fate to a country often associated more with peasants on bicycles than four-wheel drive. For the typical American family, a car is the second-most expensive purchase it will make after a home. Some see car selection as a reflection of lifestyle and class.

"The kind of car you produce in China is not the kind of car you produce for the U.S.," said Dana Johnson, chief economist for Comerica Inc., in Ann Arbor, Mich. "I don't know if the Chinese can really overcome that. It's going to be a marginal entrance for the next several years at a minimum."

Automakers in Japan and Korea once overcame similar doubts. Some say China will, too.

For Chinese companies, the move abroad is driven by weakness more than strength, say analysts. A flood of credit has nurtured too many factories at home, resulting in more goods than China can absorb, pushing prices so low that few can profit.