China's Chery trims workforce as car maker refocuses

The Wall Street Journal (Chongqing) - In the latest sign of increased pressures on Chinese auto makers, Chery Automobile Co. said it plans to cut hundreds of workers and that the company will look to new models and closer ties to partners to boost its flagging fortunes.

Assistant to the president Huang Huaqiong said the job cuts would be minor, given the size of Chery's workforce, and that over the next several years the size of the company's payroll wouldn't be much different than it is now. Chery has about 25,000 employees.

"During different stages of a company's development you need different types of people to help you," Mr. Huang said.

Chery has spent the past two years devising a restructuring plan that would allow the company to overcome bottlenecks that hamper Chinese go-it-alone car makers with limited resources that must compete against global players such as General Motors Co. GMand Volkswagen AG and their Chinese partners.

Chinese car makers in joint ventures benefit from economies of scale and the vast product and marketing resources of their overseas partners. But Chery has been relatively late to embrace ventures with foreign auto makers. The company is the China partner for the Jaguar Land Rover unit of India's Tata Motors Ltd. It also has a venture with investment group Israel Corp. to produce the Qoros sedan in China.

State-owned Chery sold around 550,000 cars last year, down 13% from a year earlier, according to Macquarie Securities analysis of data from the China Association of Automobile Manufacturers.

Analysts have cited the auto maker's failure to introduce timely, popular models, such as sport-utility vehicles, for many of Chery's woes.

"Chery is losing out in the booming SUV market, perhaps because its Tiggo model of SUV has been on the market for several years and is less competitive with newer models," said Macquarie analyst Janet Lewis. Chery's SUV sales in the first four months of this year fell 15% from a year earlier, while its sedan sales dropped 7.2%, she said.

Mr. Huang said the company's sales in China for January through May declined nearly 15% from a year earlier to around 130,000 vehicles.

He didn't elaborate on exports but said the company aims to sell 170,000 overseas this year. Last year the company exported around 182,000 vehicles, according to Macquarie. The brokerage firm pointed to weakening demand in emerging markets such as Australia, Brazil and Chile—among Chery's biggest overseas markets—as a factor for sluggish exports this year.

Mr. Huang said he is optimistic that domestic sales will rise 15% to 380,000 cars this year as the company introduces three new products, Chery's first launches in three years.

Chery also hopes that a greater focus on technology and close cooperation with its partners will help improve its fortunes.

But obstacles remain.

"Chery's biggest challenge is learning how to develop moneymaking cars," said Macquarie's Ms. Lewis. Without a profit, it is hard to put money into research and development to develop new products, she said.

The company faces intensifying rivalry from joint-venture companies entering the low-price segment—typically a strong market for Chery and other Chinese auto makers that aren't allied with big global players.

The Chinese government encourages global auto makers to develop so-called joint-venture indigenous brands to build up technological and marketing capabilities of Chinese auto makers.Nissan Motor Co.'s 7201.TO 2.00% passenger-car joint

venture with China's Dongfeng Motor Corp. introduced the Venucia brand here and sold 36,069 in the first five months of this year. Other global auto makers are following suit.