Chery delays growth to improve quality

SHANGHAI -- Chery Automobile Co., long the fastest growing Chinese automaker, stopped growing in the first half of this year.

Can it still become a world-class automaker, a goal its president Yin Tongyao set late last year?

Yes. Actually, the company now has a much better chance to succeed than ever before.

Passenger vehicle sales in China reached 3.6 million units in the first six months, up 17.1 percent year-on-year. By contrast, Chery's sales, about 208,000 units, barely changed from a year ago.

Chery is obviously losing market share. But that is because the company has put the quality of its products before their quantity and halted new model launches since October last year.

Chery was incorporated in March 1997. In August 2007, it became the first domestic automaker to produce 1 million units. That's remarkable growth, indeed. But it also came at a cost.

While aggressively expanding production, the company compromised a key aspect of sustainable growth: product quality.

Fortunately, Chery's managers realized that changes were necessary.

They know that without good product quality, Chery can only make a profit of about 500 yuan ($74) by selling a car, as Yin famously once said.

They also realized that without quality, the deal they signed with Chrysler LLP won't lead anywhere.

To make its next new model, the A3 mid-sized sedan, a fine product, Chery has repeatedly postponed its launch. Meanwhile, with Chrysler's request help, Chery is making consistent improvements to the vehicle that it plans to sell in the United States with a Chrysler badge.

Also, Chery's joint venture project with Israeli investment company Quantum is well underway. The new venture mainly targets the international market.

Chery is also cooperating with more global suppliers, such as ArvinMeritor and Continental, for high quality parts.

True, Chery may be still a thousand miles from becoming a world-class player. But the company is making progress.

Chery put four new models into sales in the first nine months of 2007. But no new model has been launched since.

I expect to see its new product to come out of such a long waiting period with much better quality than its predecessors.