A U.S. Car Deal With A Little Chery on Top?

A Chinese model and a Chery QQ car pose together at the Beijing Auto Show.
A Chinese model and a Chery QQ car pose together at the Beijing Auto Show. (By Greg Baker -- Associated Press)
By Ariana Eunjung Cha and Tomoeh Murakami Tse
Washington Post Foreign Service
Friday, March 2, 2007

SHANGHAI -- When Chery Automobile cars first appeared outside of China in 2001, they were ridiculed as a cheap attempt to trick purchasers into thinking they were buying Chevy vehicles instead of Chinese knockoffs.

These days, however, when industry watchers talk about the future of the auto industry, Chery's name and its lines of cute, gas-efficient cars elicit excited talk.

The company has done so well -- it is now the No. 1 independent automaker and auto exporter in China, with business in 30 countries -- that when DaimlerChrysler announced this month that it may be interested in selling off its flailing Chrysler unit, many analysts mentioned Chery as a potential suitor.

Chery spokesman Wang Wei denied any such deal was in the works, and many industry analysts in China were skeptical about a merger, citing Chery's small size and potential political hurdles.

Harry Zhao, an auto analyst for CSM Worldwide in Shanghai, ruled out a wholesale buyout of Chrysler by Chery. "Almost impossible," he said.

"Premature," concluded Michael Dunne, vice president of J.D. Power and Associates' Asia Pacific division.

Chery sold just over 300,000 cars last year -- roughly 25,000 of which were exported. This year, it is expected to sell nearly 400,000. But a single auto plant in the United States produces that many cars in a year.

Politics also stands in the way, analysts said. "At this stage, with tensions between the United States and China, an acquisition of a Detroit carmaker by a Chinese state-owned enterprise would be politically unpalatable," Dunne said.

Instead, Dunne said, Chery may seek to exploit another possible outcome of a Chrysler deal. Analysts have speculated that a private-equity company might want to buy the Chrysler unit and then sell it off piece by piece. In such a case, Chery could pass up the manufacturing plants and other assets but seek to buy the Dodge brand.

Chery's biggest competitive advantage is that it excels at manufacturing small, gas-efficient vehicles at low cost. This week, DaimlerChrysler said it would expand a partnership with Chery that it initiated earlier in the year under which the Chinese automaker would build small cars for sale by Chrysler in North America and Western Europe.

Aside from Chery, securities analysts have floated a number of auto companies as potential buyers for Chrysler. But many European and Asian carmakers are either overstretched, underfinanced or simply not prepared to swallow an operation as large as Chrysler, the analysts said.

While not ruling out a possible bid by General Motors, John Murphy, an analyst with Merrill Lynch, said a more natural candidate for Chrysler would be an automaker seeking to establish, or widen, a foothold in North America. In a recent report, Murphy mentioned Nissan, Chery and Shanghai Automotive as potential suitors.

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