China Seeking Auto Industry, Piece by Piece


Richard Moore


February 17, 2006
China Seeking Auto Industry, Piece by Piece


CHONGQING, China, Feb. 16 - China is pursuing a novel way to
catapult its automaking into a global force: buy one of the
world's most sophisticated engine plants, take it apart,
piece by piece, transport it halfway around the globe and
put it back together again at home.

In the latest sign of this country's manufacturing
ambitions, a major Chinese company, hand-in-hand with the
Communist Party, is bidding to buy from DaimlerChrysler and
BMW a car engine plant in Brazil.

Because the plant is so sophisticated, it is far more
feasible for the Chinese carmaker, the Lifan Group, to go
through such an effort to move it 8,300 miles, rather than
to develop its own technology in this industrial hub in
western China, the company's president said Thursday.

If the purchase succeeds - and it is early in the process -
China could leapfrog competitors like South Korea to catch
up with Japan, Germany and the United States in selling some
of the most fuel-efficient yet comfortable cars on the
market, like the Honda Civic or the Toyota Corolla.

The failure of China to develop its own version of
sophisticated, reliable engines has been the biggest
technical obstacle facing Chinese automakers as they
modernize and prepare to export to the United States and
Europe, Western auto executives and analysts said.

Buying that technology from overseas would not only remove
this obstacle but would also plant China's auto industry
solidly in a position to produce roomy cars that can also
get more than 30 miles to the gallon.

The engine plant is one of the most famous and unusual in
the auto industry. Built in southern Brazil in the late
1990's at a cost of $500 million by a 50-50 joint venture of
Chrysler and BMW, the Campo Largo factory combines the
latest American and German technology to produce the
1.6-liter, 16-valve Tritec engine.

Lifan says it is the sole bidder for the factory and wants
to bring it here to start producing engines in 2008. Though
China's Communist Party is actively behind the effort, the
bold moves are being driven by one of China's remarkable
entrepreneurs: Yin Mingshan has become one of China's most
successful and most politically connected corporate
executives, with a hardscrabble upbringing that included
spending 22 years of his earlier life in Communist labor
camps and prison as punishment for his political dissent.

Now the enormously wealthy and prominent president and
principal owner of Lifan, Mr. Yin has his sights on
exporting to Europe in 2008 and the American market in 2009.

Trevor Hale, a DaimlerChrysler spokesman, and Marc
Hassinger, a Bayerische Motoren Werke spokesman, each said
separately that their companies were assessing their options
for when their joint venture legal agreement expires at the
end of next year, but that it was premature to provide

The Tritec engine is one of the most technologically
sophisticated and fuel-efficient car engines in the world,
said Yale Zhang, an analyst in the Shanghai office of CSM
Worldwide, a big auto consulting company based in the
Detroit suburbs. Mr. Yin said he wanted to rebuild the
factory on vacant land next door to his car assembly plant
here. His goal is to understand the technology thoroughly so
that he can supply engines not only for Lifan but also for
other Chinese automakers.

In an interview on Thursday in a glass-walled conference
room overlooking his recently completed car assembly plant,
Mr. Yin, 67, said that while Lifan would pay for the
factory, the Chinese negotiating team is being led not by a
Lifan official but by a senior Chinese Communist party
official, Huang Zhendong.

Mr. Huang, 65, is a member of the party's powerful Central
Committee and led the party's Chongqing branch until
December, when he became a senior member of the influential
legal committee of the National People's Congress in

Mr. Yin's deputy, Yang Jong, Lifan's chief executive, has
accompanied Mr. Huang on a visit to Brazil. "Everyone knows
you need government support - the government may provide
land," Mr. Yin said.

Any attempt to buy a comparable factory in the United States
might be blocked. But Mr. Yin said that Brazil did not have
comparable restrictions on the export of high technology.

Lifan, already one of the world's largest motorcycle
manufacturers with sales in 112 countries, is about to start
exporting its remarkably well-built, $9,700 midsize sedans
to developing countries in Asia, the Mideast and the
Caribbean. But several more years of work is needed before
the company is ready to compete in industrialized countries,
Mr. Yin said.

"Chairman Mao taught us: if you can win then fight the war,
if you cannot win, then run away," he said. "I want to train
my army in these smaller markets, and when we are ready, we
will move on to bigger markets."

Accustomed to producing lightweight, fuel-sipping cars for
cost-conscious Chinese families, Chinese automakers want to
use that expertise as a competitive advantage around the
world while oil prices stay high. Geely, a separate Chinese
carmaker that surprised American and European manufacturers
by announcing plans at Detroit's auto show last month to
enter the American market in 2007, was emphasizing gas
mileage even before oil prices surged in the last two years.

When crude oil prices were much lower than they are today,
Geely switched from an inexpensive electronic engine control
and fuel injections system made by Denso of Japan to a more
expensive but more fuel-efficient model made by Bosch of
Germany, said Lawrence Ang, an executive director of Geely.

Multinational automakers have struggled in China to keep up
with the public's growing appetite for fuel-efficient
models. Chinese carmakers like Chery and Geely captured a
quarter of the Chinese market last year, up from less than
10 percent just two years earlier, said Michael Dunne, the
president of Automotive Resources Asia, a consulting firm.

"Why the spurt? Small cars powered by gas-sipping engines
that start at $4,000," Mr. Dunne said.

Raymond Bierzynski, the president of the Pan Asia Technical
Automotive Center of General Motors in Shanghai, said that
gasoline costs were more important to consumers in China
than elsewhere because these costs represent a higher share
of the low household incomes in China. G.M. sells its Buick
Excelle compact sedan with special, low-rolling-resistance
tires in China, which it does not do in any other market and
which increases gas mileage by up to 2 percent, he said.

Chrysler and BMW began construction of the Campo Largo
factory in April 1998, a month before Daimler-Benz began a
takeover of Chrysler that it completed in November of that
year. Heralded in the automotive press at the time as
arguably the most advanced engine factory ever built, the
factory had already become a corporate orphan by the time
production began in September, 1999.

The Brazilian auto market had entered a slump by then and
Daimler already had ample engine manufacturing capacity of
its own and was uncomfortable collaborating with its
longtime German rival, BMW.

BMW installs its half of the engines from the factory in its
award-winning Mini Coopers. But it has already announced
that future engines for these cars will come from a factory
in France that is owned and operated by PSA Peugeot Citroën.

Chrysler used to put the Brazilian-made engines in its Neon
compact cars and the PT Cruiser. But it is now selling its
half of the engines to Lifan and to Chery Automotive and a
Chinese joint venture by Mazda.

Mr. Yin and spokesmen from DaimlerChrysler and BMW declined
to comment on the price under negotiation for the factory.

Lifan made its debut into the car market just last month
with the introduction of the Lifan 520 sedan, assembled in
the company's sprawling new assembly plant here, where the
conveyor belt is bright red and the giant clamps holding
unfinished cars are bright yellow - the colors of China's
flag. Lifan models itself on Honda, another motorcycle
manufacturer that entered the car market, and shares Honda's
emphasis on efficient, energy-saving designs.

Lifan has also copied Honda's focus on quality. Huge
characters of Mr. Yin's sayings adorn a Lifan motorcycle
engine factory inside and out; an illuminated board over the
assembly line reads: "Whoever wrecks Lifan's brand, Lifan
will wreck that person's rice bowl."

A test drive here of the Lifan 520 sedan showed it to have
an impressively sturdy body with no rattles or wiggles even
when traveling over very rough pavement - although this is
no guarantee of long-term reliability. There is ample
headroom in the front seats and even the rear seats for a
6-foot-4 occupant.

The $9,700 price tag includes leather seats, dual air bags,
a huge trunk and a DVD system with a video screen facing the
front passenger - a combination that could cost twice as
much in a comparably equipped midsize sedan in the United

Wages of less than $100 a month have helped control the
cost. The assembly plant is better organized than many
Chinese factories, although it still maintains large
inventories of parts and materials awaiting assembly,
incurring interest charges to finance these supplies.

Mr. Yin has no doubts that China can also compete with the
United States.

"Americans work 5 days a week, we in China work 7 days," he
said. "Americans work 8 hours a day, and we work 16 hours."

Copyright 2006The New York Times Company



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