Still Lots of Hurdles for Chinese Cars for U.S. Market

(MoneyWatch)  NEW ORLEANS -- It took years for China auto industry expert Michael Dunne to convince the rest of the world that Chinese automakers really could mount a credible effort to export cars to North America -- first with his own firm, and since 2006, as director, Asian operations, for J.D. Power and Associates.

Having accomplished that, Dunne is now spending a lot of time explaining what's taking them so long to get here.

"Why are they not here yet? Why haven't we seen the cars yet?" Dunne said everybody asks him. He spoke at a J.D. Power Roundtable presentation here on Jan. 22, coinciding with the start of the annual convention of the National Automobile Dealers Association.

Dunne said the three front-runners for potential North American sales are BYD Auto, Chery Inc., and the FAW Group. BYD said at the Detroit auto show earlier this month that it expects to offer electric cars or gasoline-electric hybrids in the U.S. market by 2011, Dunne said.

However, several other would-be breakthroughs have failed, such as a deal between Chrysler and Chery that would to have brought a small car to the U.S. market. Chrysler recently shelved the idea, as it fights to avoid bankruptcy.

So what is taking so long, for Chinese companies to launch in the United States? Dunne cited three main reasons, which he called "reality checks":

1. The Chinese companies with the most suitable products for North America are small and young companies. Chery produced only 350,000 units last year. "It takes eight Cherys to make one Hyundai," Dunne said. BYD, which makes lithium-ion batteries for cell phones, only entered the auto business in 2003.

2. Quality, or lack thereof. "This is probably the most important one," Dunne said. According to J.D. Power, even in China, Japanese imports dominate customer-satisfaction surveys among Chinese consumers.

3. A lack of experience exporting to prosperous markets, with highly demanding customers. The list of countries importing Chinese cars so far looks like a U.S. "enemies" list, including Viet Nam, Iran and Syria, he said. "All these customers are looking at, is price," not quality, Dunne said.

Nevertheless, Chinese cars in the U.S. market are, "a matter of when, not if," Dunne said. The Chinese car companies have powerful policy and financial backing from the Chinese government, he said. "Never underestimate the determination of a Chinese businessman," Dunne said.