Chery Automobile: Vying for a Piece of the American Pie (A) Custom Case Solution & Analysis

1. Evidence Brief (Case Researcher)

Financial Metrics

Chery revenue (2004): 10.7 billion RMB (~$1.3 billion USD).
Chery sales volume (2004): 86,000 units, ranking 8th in China.
Market share (China, 2004): Approximately 8%.
R&D investment: Chery allocates roughly 10% of annual revenue to R&D (Paragraph 14).

Operational Facts

Production capacity: Expanding rapidly; goal to reach 400,000 units/year by 2006.
Export strategy: Began exporting in 2001; currently targeting developing markets (Middle East, Russia).
Quality issues: Historically plagued by reliability concerns; significant investment in ISO/TS 16949 certification (Paragraph 22).
Partnerships: Collaboration with Visionary Vehicles (Malcolm Bricklin) for US entry.

Stakeholder Positions

Yin Tongyao (Chairman/CEO): Sees internationalization as essential for survival and prestige.
Malcolm Bricklin (Visionary Vehicles): Proposes importing Chery cars to the US by 2007; claims to have distribution network.
Chinese Government: Supportive of "going global" policy; provides state-backed financing support.

Information Gaps

Detailed US regulatory compliance costs (EPA/NHTSA certification).
Specific breakdown of Chery manufacturing cost advantages vs. established global OEMs.
Financial health and capital backing of Visionary Vehicles.

2. Strategic Analysis (Strategic Analyst)

Core Strategic Question

Should Chery enter the US market by 2007 via a partnership with Visionary Vehicles, or focus on consolidating its position in emerging markets and domestic China?

Structural Analysis

Value Chain: Chery lacks the brand equity and service infrastructure required for the US consumer market. Relying on Bricklin shifts the burden of brand building to an unproven partner.
Porter Five Forces: The US auto market is characterized by intense rivalry and high barriers to entry (regulatory and brand). The power of buyers is high due to information transparency.

Strategic Options

Option 1: The Bricklin Fast-Track. Partner with Visionary Vehicles to enter the US by 2007. Trade-offs: High speed-to-market; high risk of brand damage if quality fails. Requirements: Massive capital for homologation and dealer network.
Option 2: The Staged Global Expansion. Focus on Eastern Europe and Latin America for 3-5 years. Trade-offs: Slower growth; lower barrier to entry. Requirements: Development of a mature service network.
Option 3: Domestic Consolidation. Focus solely on the Chinese market to improve margins. Trade-offs: Risk of being squeezed by global OEMs in China.

Recommendation

Reject Option 1. The US market requires a level of quality and service infrastructure that Chery cannot currently guarantee. Pursue Option 2 to build global brand credibility.

3. Implementation Roadmap (Implementation Specialist)

Critical Path

Quality Audit: Standardize production lines to meet international (not just Chinese) quality benchmarks.
Supply Chain Stabilization: Secure long-term contracts with global component suppliers (e.g., Bosch, Continental) to replace low-quality local parts.
Service Infrastructure: Establish regional service hubs in target export markets to ensure parts availability.

Key Constraints

Homologation: US safety and emission standards are non-negotiable. Current R&D is not calibrated for these.
Brand Perception: A bad launch in the US will permanently damage the Chery name globally.

Risk-Adjusted Strategy

Delay US entry until 2010. Use the interim to prove "Chery quality" in markets with lower regulatory hurdles. Develop a direct-to-market strategy rather than relying on external intermediaries like Bricklin.

4. Executive Review and BLUF (Executive Critic)

BLUF

Chery must reject the Visionary Vehicles proposal. The US automotive market is a graveyard for brands lacking established service networks and proven product reliability. Entrusting a market entry to Malcolm Bricklin—who has a history of failed automotive ventures—is an unacceptable operational risk. Chery’s current priority is not volume in the US, but the stabilization of its manufacturing quality and the development of an independent global service presence. Entering the US now would deplete capital, invite regulatory failure, and destroy brand equity before it is even established. Chery should focus on expanding its footprint in emerging markets where its price-to-performance ratio provides a genuine competitive advantage.

Dangerous Assumption

The assumption that Bricklin’s distribution model can overcome the fundamental lack of brand trust and service support for an unknown Chinese manufacturer.

Unaddressed Risks

Regulatory Liability: The cost of product recalls in the US would be catastrophic for a company of Chery’s size.
Supply Chain Fragility: Current reliance on local suppliers makes meeting US emission and safety specifications improbable in the proposed timeline.

Unconsidered Alternative

Form a joint venture with an established global OEM (e.g., PSA or Fiat) to produce cars for emerging markets, using that partnership to learn western manufacturing and quality standards before going solo in the US.