Anyone doubting the quality of Anhui automaker Chery’s cars should talk to Sami Haddad, Lebanon’s economy and trade minister. In a country where politicians are frequent targets of violent attacks, Haddad and Mohamad Safadi, the public works minister, have chosen armored Chery Eastar sedans as their favored mode of transport.
The dealership that sold the cars has no doubts about their safety.
“It is a really good product,” said Chadi Louis, general manager of Lebanese Auto Agencies, who drives a non-armored version of the Eastar. “It has a good-quality engine and transmission, and I don’t have any problems whatsoever.”
As China’s carmakers expand, Louis and his political customers are among a growing Middle Eastern group turning to Chinese cars.
“The consumer in the [Middle East] is starting to look at Chinese cars for value-for-money,” said Lord Edwin E. Hitti, president of the Arab Chamber of Commerce and Industry in Hong Kong.
This has prompted Chinese auto firms to pay more attention to the Middle East market. Chery, which began exports to the region in 2001, recently started an assembly joint venture in Iran and is building a second regional plant in Jordan.
An urge to export
China’s auto market is the world’s second-largest and growing fast. Daiwa analyst Alex Fan says roughly 8 million cars were sold in China last year, with first-quarter sales up 20% year-on-year. But local firms have found that exporting offers a chance to expand even more quickly.
Lawrence Ang, executive director of Zhejiang-based Geely Automobile Holdings, said low domestic demand for its inexpensive sedans led it to begin exports to the Middle East in 2003.
“We had to sell something to pay for our workers, to spend money on R&D,” said Ang. “So we went outside to find out whether … there was demand for affordable, easy-to-maintain, economic sedans.”
Geely chose the Middle East in part because, with no auto industry of its own, it had fewer regulations and restrictions than other markets, Ang said. With sales of about 1 million units a year, growing at around 10%, the market also suited Geely’s needs.
Although Ang considers the Middle East an “easy” market, Geely still faced obstacles. Unfamiliar with customers’ expectations, it found itself operating on “a trial-and-error basis.”
“We didn’t know … how they use their cars, how they maintain them,” said Ang.
Geely’s unfamiliarity wasn’t necessarily its fault. Lord Hitti of the Arab Chamber believes this is a common problem for Chinese companies entering the region.
“The number one barrier [to trade between China and the Middle East] is lack of information,” he said, noting that even basic information about trade volumes is difficult to quantify.
That lack of information can be critical in a region where customs regulations and customer expectations vary widely between countries. Louis, who sells cars in Lebanon and neighboring Syria, noted some of the differences between the two markets.
“In Lebanon the customs duty is 20%. In Syria [it’s] about 100-110%.”
He went on to say that Lebanese customers are more service-oriented than their neighbors – an issue for a company like Geely, which does not directly oversee after-sales service in the region.
Geely’s early learn-as-you-go approach has drawn criticism from observers more skeptical of the overseas expansion of Chinese cars.
“Why not get your business in order in China before looking [overseas]?” asked John Bonnell, partner at consultancy Automotive Resources Asia in Bangkok. “If they’re competitive in China, they’re going to be competitive in the Middle East.”
Quality before quantity
Mark Wilkinson, China editor of Automotive Engineering International, agrees, but points out that GM, for example, already ships China-made Cadillacs for sale in the Middle East.
“This proves that Chinese workmanship … can meet the quality requirements of [companies from] developed markets,” Wilkinson said.
For its part, Geely claims to have learned from its Middle Eastern experience. Now, it’s ready to move on.
“We still spend lots of effort in the Middle East … [but] more attractive markets in the short-to-medium term are Eastern Europe, Southeast Asia and Central America,” said Ang.
Chinese automakers may already be approaching exports differently. Chery, for example, is slowing its expansion to focus on improving quality after a high-profile attempt to export cars to the US fell apart in late 2006. The company had “a splash of reality,” Bonnell said.
For any other Lebanese officials thinking of trusting their lives to armored Cherys, quality before quantity will be welcome news.