Automakers Eye the New Competitor: China

Far from the usual auto show-stoppers like the luxury Mercedes sedan or Porsche sports car, three Chinese carmakers are set to be the alternative stars of the 2005 Frankfurt Auto Show, which officially opens Tuesday.

The Chinese line-up includes Geely with five models, featuring a sporty car dubbed CD for "China Dragon."

Importer Landwind is unveiling a four-wheel drive vehicle by Jiangling, a joint venture with Ford in China. It is priced at around 17,000 euros ($21,130), around half that of its nearest rival.

Brilliance, a Chinese venture with BMW, is showcasing its sedan Zhonghua, which should be on sale in Germany by the end of the year starting at 18,000 euros.

The three Chinese companies are "the second cut," unlike the big manufacturers such as Shanghai Automotive Industry Corp (SAIC), noted Ferdinand Dudenhöffer of Germany's Center for Automotive Research (CAR).

Inexpensive cars the trend

But this third wave of Asian carmakers is just getting revved up.

A German journalist in Automobile News Europe drove home a warning to western automakers not to "underestimate" the Chinese competition as they did in the past with the Japanese and the Koreans.

Many European consumers need "cars to simply go from point A to point B. That's exactly what the Chinese cars arriving in Europe offer," Jens Dralle wrote in an recent article.

"It is not just the Koreans and the Japanese. Now we have the next wave coming. It's getting tighter and tighter for the indigenous car manufacturers" in Europe, Sabine Bluemel, a car sector analyst at Banca IMI in London, told Reuters.

The demand in Europe for inexpensive cars has grown as buying power has declined, evidenced by the success of the Logan made by Renault's Dacia division in Romania, which sells for about 8,000 euros.

Real impact a while off

Still, automobiles "made in China" will have to prove their worth before making a breakthrough in the European market.

"We do not buy a car like a shirt or a plastic toy, even if the price is much cheaper. Switching to Chinese products with unknown brands and uncertain quality is not something that's going to happen tomorrow," said Remi Cornubert, director of the Paris bureau of Mercer Management Consulting.

China's entry into the auto market "is real, but it is not going to immediately become a massive phenomenon in Europe," Cornubert said.

He pointed out that it took Korean carmakers Hyundai and Daewoo "a dozen years to make attractive cars with acceptable quality."

Dudenhöffer does not see "any threat in the short term due to problems with quality and designs which are not that exciting," he said. He expects the Chinese to have about 1.5 percent of the European market in 2010.

Industry already weakened

A new scrum touched off by cut-price competition is the last thing carmakers need. While there has been a slight uptick in the German market, manufacturers are still grappling with lackluster sales growth, high raw material prices and margin-denting incentives.

Industry executives will also have to consider the impact of record fuel prices that sooner or later will make consumers think twice about splashing out on fuel-thirsty SUVs and high-powered masters of the autobahn -- like Mercedes and BMW -- which are the auto world's real money spinners.

Chinese carmakers have the support of the government in Beijing, as China's ambition is to overtake Germany as the world's third largest automobile producer, after the United States and Japan.

"The Chinese carmakers are coming, but it will be difficult for them to find a place as quickly as Hyundai did in the past," the president of Japan's Mitsubishi, Osamu Masuko, told journalists.

"Not only because the technologies never stop improving but also because the political climate will not be strongly in its favor," he added, alluding to the recent battle between the European Union and China over textile imports.