CHAMCO--China is Coming

Nobody asked me, but . . .

Another National Automotive Dealers Association (NADA) Convention has bitten the dust. I’m speaking figuratively, or course, because this year the convention was held amongst the glitz and glamour of the Nevada desert in the city affectionately known as Lost Wages in the Hilton Convention Center. I generally visit the HCC at least once a year, typically the first week in November when SEMA takes over the entire town. And I do mean the entire town. Compared to the Tokyo-like density of people and exhibits at the Hilton Convention Center during SEMA week, the NADA felt like a ghost town. I could actually move from one hall to another without bumping into 461 other SEMA-ites walking in at least 326 different directions. NADA regulars told me that attendance was down this year (mostly the domestics) but that most of the usual suspects were in town.

I don’t normally attend the NADA convention, but this one was freeway close so I packed a bag, jumped behind the wheel of a Lincoln MXZ (Nee Zephyr, and judging by how Ford has magically converted the Five Hundred into a Taurus, who knows what name this smallest of Lincoln’s will wear next week. Anyone for Utopian Turtletop? Don’t laugh. Ford almost applied that badge to the Edsel!).

It’s about a four-hour flight (including one pit stop) from the OC to Vegas using mostly I15 as the route of choice. I’ll leave it to you to do the math. Anything else I say could and probably would be used against me in a court of law.

The M-K-Z (Is that the latest pronunciation? I’m not sure even the L-M folks know.) made quick “work” of the trip to Vegas. It’s a comfortable ride. It’s got excellent high-speed cruising ability, a supple, supportive ride, nicely balance steering and handling including confidence-inspiring AWD (It could use stronger brakes, however.) and a 3.5-liter V6 that is an easy breather at elevated speeds. Even my navigator (the stacked one occupying the passenger seat, not the one in the center stack) commented on how serenely time and landscape flew by. And it didn’t hurt that the Z was Sirius-radio equipped.

But I have digressed enough. Much of the news at NADA, whether you were dealer or media, was concentrated in two arenas: China and electrics. I arrived early enough on Friday afternoon to catch Michael Dunn of JD Power present some current thinking on China and where it’s headed automotively. At the show, itself, three booths seemed to be grabbing more than their fair share of attention: Zap, Miles Automotive and Chamco Auto (China America Cooperative Automotive, Inc). The first two are in the electric car business and the last is into China.

I spent a bunch of time talking to the Chamco folks and actually got to drive both of their first models, a pickup truck and an SUV, at parking lot speeds. Chamco auto signed an agreement with a Chinese partner, Hebei Zhongxing Automobile /company, Ltd. In Baoding, China in January 2006 (Chamco calls this company ZXAUTO China.).

I sat in examples of the SUV and the pickup at the Chamco booth. Candidly, and the Chamco folks know this, the quality is not up to U.S. expectations. If they were introduced today, both would be bottom feeders in the JD Power quality studies. But Chamco is committed to quality and has right of refusal on any vehicle that doesn’t meet Chamco’s quality engineers’ seal of approval.

The SUV, called the Landmark in China, is about the size of a Toyota Pathfinder or a Chevy Trailblazer. The extended cab Pickup, called the Admiral in China, is harder to quantify because it has a much shorter wheelbase than any of the pickups sold in the U.S. today. I had to go back to a 1997 Dodge Dakota Regular Cab with a six-foot bed to find a truck with about the same wheelbase and overall length.

Both vehicles are Euro 3 compliant and are legal for sale in Mexico. As a result, Chamco expects to begin shipping current production SUVs and Pickups to Mexico by June 2007 where they will be sold through a network of 25-30 dealers. This will allow Chamco engineers to accumulate real world customer data close to home and conduct extended durability testing prior to U.S.-legal models hopefully reaching American dealers by mid-2008.

Initially, U.S. vehicles will be built based upon the KISS principle: Keep It Simple, Stupid. Both the Pickup and the SUV will be offered in base and deluxe trim levels, with either rear- of 4-wheel drive (including a shift-on-the-fly transfer case) a choice of a 5-speed manual or 4-speed automatic (SUVs are automatic only), a choice of seven exterior colors and no options. This will simplify the product pipeline between China and the U.S. and assist in maximizing quality.

Shipments to the U.S. are planned by mid-2008, which would probably make Chamco the first importer of homologated Chinese cars in the U.S. Prices? Chamco is targeting a base 2WD truck at an MSRP of $13,250 and a deluxe version of the 4WD SUV at $18,000 and change. The basic warranty will be 3 years/36,000 miles plus a powertrain warranty of 50,000 miles. And full roadside assistance will be standard.

Chamco dealers are guaranteed by ZXAUTO China, for five years, at least a 20 percent pricing advantage versus any comparably equipped competitor, including other Chinese-manufactured vehicles. That’s a pretty powerful marketing statement.

About a year after the SUVs and pickups are introduced, Chamco will follow with entry-level sedans and crossovers, also from ZXAUTO. In addition, Chamco is talking to several other Chinese manufacturers with the goal of rounding out their vehicle lineup with a sports car, minivan and a hybrid. Currently, Chamco has a 4-cyliinder diesel-electric hybrid, capable of returning 80 mpg under development at its R&D center. This powertrain is projected for Chamco’s 2009 vehicles.

Chamco is planning on appointing a maximum of 150 dealers for the first two years of operation, after which the number of dealer points will grow to 400 nationwide. The first 150 dealers, along with Chamco’s Chinese manufacturers, outsourcing providers and its executive team, will be joint venture partners with Chamco. And, according to Chamco Chairman and CEO, William Pollack, all of Chamco’s top executives have agreed to salaries that are about 85-percent lower than industry averages in order to keep the company’s burn-rate to a minimum. In return, these executives have been given equity ownership and bonuses predicated on stock appreciation. So not only do they have “skin in the game” but also they are “sharing the pain” of making a startup company a success.

The SUV and pickup are already on sale in China and more than 50 other countries around the world, and according to Chamco executives, that have an established track record for reliability and high customer satisfaction. I can’t prove either of these claims, but I can tell you that Chamco isn’t attempting to reinvent the wheel with these vehicles, which I consider a smart move.

Both vehicles are body-on-frame designs loosely based on older Toyota models. So the basic underpinnings have been around for a while and proven. The same is true of the mechanicals: The 5-speed manual is a Getrag design manufactured in China, the 4-speed automatic is a Ford transmission, the transfer case is a Borg Warner design from China.

The current engine is a ubiquitous Mitsubishi 2.4-liter 4-cylinder, which will not be in the vehicles certified for the U.S. Chamco realizes the 2.4-liter is underpowered for U.S. drivers and driving conditions and has a larger 4-cylinder (another well proven design) under emissions development. Chamco is seeking a combine EPA fuel economy figure of 22.4 mpg to avoid the 2009 gas-guzzler tax.

Chamco is projecting sales of 75,000 vehicles the first year, 200,000 in the second and 400,000 by the fourth year.

I was told, not by Chamco but by a couple of disinterested parties, that more than 700 dealers met with Chamco executives during the recent NADA convention. How many of them actually sign up is a totally different story. But it does indicate a strong interest by American dealers in Chinese cars and the Chamco proposition.

However, lest I be accused of allowing the glare from a set oncoming high beams to blind my journalist objectivity, permit me to direct your attention to some of the potential berms and potholes littering the road to a successful 2008 Chamco rollout.

Will Chamco sign up 150 dealers willing to ante up $300,000 to buy into the deal as quickly as Chamco hopes? In some ways it’s not unlike Malcolm Bricklin’s now dead deal with Chery in which the dealers were asked to put $2 million into escrow to secure a territory and to partner with both Bricklin’s Visionary Vehicles and the Chery manufacturing facility.

When I drove the Chamco SUV and pickup in the Las Vegas Country Club parking lot, I found both to be solid feeling. Admittedly, this was low-speed driving in a lot devoid of the berms and potholes I mentioned previously. But later, following dinner, when William Pollack was asked a question about vehicle certification, he candidly admitted that they were too solid. During initial front impact barrier testing in China, Chamco engineers determined that the front end is not as occupant friendly as it needs to be, and additional front crumple zones will need to be added to reduce deceleration forces transmitted to the occupants.

All of this speaks to the fact that one of the shortest, bluntest arrows in the ever-expanding quiver of Chinese automotive knowledge and experience is the issue of homologation. Meeting U.S. safety and emission standards ain’t easy. And failing even one of a myriad of these regulations could delay certification and entry into the U.S. Every Chinese auto company has acknowledged this technical weakness and looked elsewhere (mostly to third-world countries) for its initial exports.

But I would be remiss if I didn’t report that Pollack expects both vehicles to shed around 300 pounds via advanced manufacturing techniques such as laser welding, which allows materials of varying thickness to be bonded together, optimizing distribution of impact forces while maximizing weight efficiency.

ZXAUTO would seem to have the production capacity to meet Chamco’s SUV and pickup needs. But during 2006 ZX auto sold fewer than 35,000 vehicles, which places them way down the totem pole of Chinese auto producers. Can ZXAUTO survive? Will the Chinese government allow them to survive? Will they be forced to merge with another auto company?

And while the prices Chamco is quoting for their midsize SUV and pickup are attractive, they are entering hyper competitive segments at a time when the market has already shifted away from these products.

Will Americans buy these vehicles, even at their much lower prices? In America, safety sells. Chamco is working on stability control systems, advanced airbags, side curtain airbags, etc. But I wouldn’t expect these features on the first models.

Chamco executives are committed to quality. And the Mexico experiences will help enormously. But can their Chinese suppliers provide the quality components required? That’s a TBD in my book.

Bottom line? Chinese cars are coming. Chamco is pursuing a logical course with vehicles that use proven technology and body-on-frame construction that should be rugged. They’ve got their stake in the ground and they are moving forward aggressively. Can they get here by the middle of 2008? I’d be hedging my bets.

But I guarantee this. There will be hell to pay if the quality isn’t top notch. I don’t believe any Chinese company doing business in the U.S. is going to get a second chance to get the quality right.