While the Chinese and Indians speed to catch up, the strategic moves of Japanese car manufacturers are of far more importance.

The U.S. market introduction is now on hold until 2008. Nearly every week, however, there are reports throughout the global auto industry that another Western business executive or another company is looking to invest in a Chinese auto company. Some of these reports are only rumors. Bricklin himself has a history of more misfires than hits: After his success with importing Subaru, he went bankrupt building his own Bricklin sports car in Canada in the 1970s. Then, in the mid-1980s, he peddled the ill-fated Yugo in North America, the car Consumer Reports called one of the worst it had ever tested.

The recent news that George Soros plans to front Chery’s development with a $200 million investment has put the company ahead of larger Chinese rivals, such as Shanghai Automotive Industry, which has also been eager to become a global automaker. China has been particularly aggressive about hyping its nascent auto industry and its efforts to develop domestic proprietary technology. Through its Sino-foreign joint venture assembly plants, China has already become the fourth-largest auto manufacturer in the world, ahead of South Korea and France. As with most of the sectors the government would like to expand, China mandates that foreign car companies wanting to sell vehicles in China must enter into joint ventures with Chinese companies first. In the auto industry, the Chinese partner is required to own at least 50 percent of each new venture, thus creating a built-in training ground for local hires who might someday apply their engineering and design talents to Chinese-owned car companies.

Their research and development, however, is not yet up to global standards. At the auto industry’s annual North American International Auto Show last January, a Chinese car was on display for the first time. The sedan, built by China’s fourth-largest auto company, Geely Automobile, looked like a 15-year-old Japanese car, with cheap-feeling seats, plastic trim pieces that appeared to be fragile and a utilitarian design that would not stir the soul of U.S. consumers. Do not expect Chinese automakers to challenge the world’s preeminent Asian manufacturers, Toyota and Honda, nor the potent partnership of France’s Renault and Japan’s Nissan, for well over a decade. It will take these Chinese companies longer still to have a major impact in the segment where the most profitable autos are sold: the global luxury-car market dominated by the likes of BMW and DaimlerChrysler.

TOP VIEW: Investors will be hearing more in the next few years about Chinese and Indian carmakers that hope to ride the wave of their emerging markets to become truly global players in the automobile industry. In reality, these manufacturers have much to learn about quality control and contemporary car sales; they remain at least a decade away from being globally competitive. But as growing consumer markets, China and India, in particular, will set the tone for the strategic direction of other carmakers around the world.

As South Korean auto industry executives have learned over the past 20 years of global expansion efforts, and as Toyota and Honda officials gleaned before the Koreans, the automotive business is about much more than just slapping together cars whose designs copy those of bigger, established auto companies, putting cheap price tags on the new vehicles and shipping them overseas. The Chinese and Indian auto companies have much to learn about quality, dealership development, distinctive brand design, warranty and ownership programs, marketing and consumer trends, and buyer loyalty. Though tantalizingly attractive on many levels, the auto business remains a stubbornly complicated and expensive worldwide industry to crack. According to Michael Dunne, an auto analyst based in China, it is more cost efficient to build a Honda Accord in Japan these days than in China because of continuing inefficiencies in parts production and supply there. A car today can have as many as 20,000 parts, making development and manufacturing far more complicated than many industry entrants may initially realize.

GM filed a lawsuit against the upstart Chery, claiming that its best-selling car in China, the QQ, is a direct copy of the Chevrolet Spark. Nevertheless, for all of the news of China being on the cusp of developing its own automobile industries with global clout, the cars rolling off its indigenous assembly lines resemble Yugo more than Chevy; in reality, Hyundai and other makers of economy cars will be most threatened by new exporters.

Still Made in Japan
While the Chinese and Indians speed to catch up, the strategic moves Japanese car manufacturers are making are currently of far more importance to investors. The Japanese are eager to develop products that will meet the needs of China, India, Russia and smaller, emerging consumer markets. It took Detroit long enough, but GM, at least, is finally beginning to recognize that hybrid cars and strategic mergers might be the company’s only salvation.