The Detroit News Exclusive Report

First Chinese cars to hit U.S. shores

Malcolm Bricklin, the man behind the Yugo, to lead new import wave in 2007.

By Bill Vlasic / The Detroit News


Robin Buckson / The Detroit News

Malcolm Bricklin sealed the deal with Chinese automaker Chery in mid-December. "What I do best is import cars ... I'd like to look at it as being the next Toyota."



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Bricklin's team


Key players in Visionary Vehicles' bid to import Chinese-made cars to the United States:



• Malcolm Bricklin, CEO of Visionary Vehicles. He got his start in the auto industry importing tiny Subaru cars to the United States in the 1960s.



• William J. vanden Heuvel, chairman of Visionary Vehicles. He is a former deputy U.S. representative to the United Nations, president of the Franklin & Eleanor Roosevelt Institute, and has served on several corporate boards.



• Allen & Co., investment banking firm. The 85-year-old Manhattan firm has been involved in high-profile deals like the 1995 linkup of Walt Disney Co. and Capital Cities/ABC and Google's initial public offering.



• Maurice Strong, chairman of Visionary Vehicles' Technology and Environmental Advisory Board. He is a former senior adviser to U.N. Secretary General Kofi Annan and adviser to the president of the World Bank.



• Per Arneberg, transportation coordinator. The Norwegian shipping magnate will oversee transportation of Chery vehicles from China to North America. He previously headed up transport of Toyotas and Yugos to the U.S. market.



• Ron Harbour, manufacturing consultant. The president of Harbour Consulting in Troy, which produces the annual Harbour Report on manufacturing efficiency, will advise on factory productivity and quality control.



• Pilot Systems LLC, emissions and safety experts. Detroit-based Pilot will oversee U.S. safety, engineering and emissions requirements for Chery vehicles entering the U.S market.


Robin Buckson / The Detroit News

Malcolm Bricklin and Chery Automobile Co. President Yin Tongyao toast the deal Dec. 16 in China. Visionary Vehicles is expected to formally announce the plans at Detroit's auto show.


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NEW YORK -- A newlyformed company led by auto entrepreneur Malcolm Bricklin and the investment banking firm Allen & Co. has signed the first-ever deal to import cars made in China for sale in the United States.

Bricklin, known best for bringing the ultra-cheap Yugo car to the U.S. market in the 1980s, is expected to announce the agreement today between New York-based Visionary Vehicles LLC and Chery Automobile Co., one of the fastest-growing players in the fledgling Chinese auto industry.

The deal to import up to 250,000 Chinese-made cars annually beginning in 2007 was finalized Dec. 16 at Chery's corporate headquarters in Anhui Province in eastern China, Bricklin told The Detroit News in an interview.

"We have an exclusive North American distribution agreement with Chery to bring in five brand-new models for delivery in 2006 to go on sale January of 2007," Bricklin told The News. "We are shooting for 250,000 vehicles the first year."

The sale of the first Chinese vehicles to American consumers will be a watershed event both in the United States, where Asian automakers have been steadily taking market share from Detroit's Big Three, and in China, where hard-charging manufacturers like Chery are eager to expand globally.

The deal marks a stunning return to the industry for the 65-year-old Bricklin, whose mercurial career includes importing Subaru mini-cars from Japan in the 1960s and going bankrupt building his own ill-fated Bricklin sports car in the 1970s.

Bricklin said that privately held Visionary Vehicles has committed to invest $200 million in the new product program at Chery -- China's eighth-biggest automaker -- for the U.S. market.

The funding will be raised by Allen & Co., a blue-chip Manhattan investment firm whose clients include Disney, Coca-Cola, Universal Studios and billionaire investor Warren Buffett. In addition, Bricklin said Visionary Vehicles is recruiting 250 U.S. auto dealers to invest in stand-alone showrooms for Chery's product line.

The president of government-owned Chery said that the Chinese automaker is "looking forward" to its historic entry into the U.S. auto market.

"The North American automobile market is complex, competitive and always changing," Chery President Yin Tongyao said in a prepared statement. "We are looking forward to working with Visionary Vehicles and taking advantage of Malcolm's expertise as we enter it."


'Opportunity is huge'


Entering the hyper-competitive U.S. market would represent an enormous step forward for Chery, which was founded in 1997 and sold only about 90,000 vehicles in China last year.

But the Chinese auto industry is expanding at a breakneck pace, with Chery among the so-called "young tigers" that are aggressively adding manufacturing capacity and setting their sights on overseas markets.

Bricklin has had moments of both spectacular success and failure in the auto business over the years. But he has assembled an impressive group of backers in his bid to become the first major U.S. importer of Chinese vehicles.

While Bricklin is chief executive officer of Visionary Vehicles, its management board is chaired by William vanden Heuvel, a senior advisor to Allen & Co. and former deputy U.S. representative to the United Nations.

In a recent interview with The News, vanden Heuvel compared the potential of bringing Chinese cars to the United States to the entrance of Japanese automakers into the American market more than 30 years ago.

"We think the opportunity is huge to be the first to go to market," vanden Heuvel said. "It's exactly the situation that Japan was in starting out."

Other partners in Visionary Vehicles include Maurice Strong, a former senior adviser to U.N. Secretary General Kofi Annan; Norwegian shipping magnate Per Arneberg; and New York construction executive John Cavanaugh.

Bricklin said that design work on five all-new Chery vehicles, including two sedans and a sport utility vehicle, has been under way since last year. He said the goal is to price the vehicles 30 percent below competing models in the U.S. market.


Automaker's global plans


But bringing 250,000 new cars to market in less than three years -- and passing U.S. regulations on safety and vehicle emissions in the process -- is virtually unprecedented. If successful, the new brand would be as big as General Motors Corp.'s Saturn division or Ford Motor Co.'s Mercury brand.

The size of Chery's investment in the new product line has not been made public. But Bricklin said the Chinese company has recently completed a major expansion of its manufacturing complex in the remote city of Wuhu in Anhui, an inland province of more than 60 million people.

"I have great confidence that they are going to be as innovative and productive as any automobile company in the world," Bricklin said. "They're ambitious like crazy. They want to be a major global player."

But whether Chery can build vehicles to the standard of quality needed for the U.S. market remains to be seen. The company's top-selling vehicle in China, the QQ, is the subject of a bitter legal battle with GM, which charges that the small sedan is a direct copy of GM's Chevrolet Spark.

Moreover, Chery is still considered a second-tier Chinese auto manufacturer behind Shanghai Automotive Industry Corp.'s joint ventures with industry giants GM and Volkswagen AG.

"Their quality still isn't as good as that of the joint ventures, but it's improving," said Yale Zhang, the Shanghai-based head of forecasting for the research firm CSM Worldwide.

Visionary Vehicles has hired Troy-based manufacturing expert Ron Harbour, publisher of the influential Harbour Report on auto productivity, to assess Chery's assembly processes and manufacturing operations.

"It is inevitable that Chinese cars will be imported into this country within the next five years," Harbour said in an interview. "If it wasn't Malcolm doing it, it would be somebody else."


Grand ambitions


The fast-talking, charismatic Bricklin disappeared from the auto scene in 1992 when his last import company, Yugo America Inc., collapsed amid falling sales and production problems in war-torn Yugoslavia.

But Bricklin isn't one to let past travails dampen his enthusiasm for the next big deal.

"What I do best is import cars, and this is the most incredible opportunity in the car business," he said. "I'd like to look at it as being the next Toyota."

Bricklin has always harbored grand ambitions in the auto industry. A University of Florida dropout who started a chain of hardw

are stores in the 1960s, Bricklin and a partner launched Subaru of America with a $75,000 investment in 1968.

His first import, the tiny Subaru 360, initially sold well at the cut-rate price of $1,300, but tanked in the market after Consumer Reports magazine dubbed it "unacceptably hazardous."

Bricklin moved on in 1972, founding his own auto manufacturing company with funding from the Canadian government and the province of New Brunswick.

The Bricklin SV-1, a futuristic sports car with gull-wing doors, went into production at a Canadian plant in mid-1974. Within a year, the company was bankrupt, running up $32 million in debts after producing just 2,800 cars.

"I wanted to build a car. It didn't go very well," Bricklin said. "It happened to be the safest car ever built at the time, but we had tremendous labor and production problems."

A subsequent deal to import Italian-made sports cars went awry, and, in 1985, Bricklin began importing a bargain-basement, hatchback sedan into the United States from communist-led Yugoslavia.

Priced at $3,995, the little Yugo was somewhat of a sensation at first -- a cheap, basic alternative to used American cars. But its quality left much to be desired. Consumer Reports called it "one of the worst cars (the magazine) has ever tested."

Bricklin sold his stake in the New Jersey-based company in 1988, and Yugo America folded four years later after selling a total of 160,000 cars. By then, Bricklin had moved to Arizona and filed for personal bankruptcy.

A subsequent venture building electric bicycles in California also went bust, leaving a trail of angry investors in its wake. "I wouldn't trust him as far as I could throw him," said Ron Tonkin, an Oregon auto dealer who lost more than $100,000 when the company was liquidated.

But Bricklin -- a relentless promoter and self-described "visionary" -- resurfaced in 2002 with a plan to bring back the Yugo, then being made in small numbers by Serbian automaker Zastava Motor Works.

"If you give up, that's when you're a failure," he told Forbes magazine at the time.

The Serbian assembly plant, however, had been badly damaged by NATO bombers during the civil war that raged across the former nation of Yugoslavia in the 1990s.

Rebuilding the plant would have been prohibitively expensive, and Bricklin took his search for a low-cost auto factory to Romania, Poland, England and India. In early 2004, he landed in China.

"What I was really looking for was a factory to build my cars," he said. "And I found a factory that was about as impressive as any factory I'd ever seen."


Low labor costs are key


He met with Chery President Yin in Wuhu in April 2004. Talks continued throughout the year as Bricklin assembled his investment group and management team.

Some of the key players, such as marketing executive Paul Lambert and product development chief Tony Ciminera, were veterans of Bricklin's Yugo days. The negotiations, however, picked up momentum when Allen & Co. came on board in the summer of 2004.

Bricklin's business model -- using low-cost Chinese labor to hold down vehicle prices for entry-level U.S. models -- convinced Allen & Co. to back the effort.

"What Malcolm is proposing to do for Chery is what he has been able to do time and time again with imported cars," said Juan Prado, an Allen & Co. executive.

A consulting firm in China, Globe Capital Partners/Galaxaco, was brought in to facilitate talks with senior officials in the Anhui provincial government, which controls Chery through a series of investment companies.

Final negotiations began in early December. Bricklin flew to China on Dec. 11, and five days later signed the deal with Yin at a brief ceremony at Chery's corporate offices.

"We got everything we wanted in the contract," Bricklin said. "These people are looking to build cars for export, and they understand they need us to make it happen."

Visionary Vehicles is expected to hold a press conference detailing its plans in Detroit during the 2005 North American International Auto Show, which opens for media previews Jan. 9.

The company has significant hurdles ahead, not the least of which is overseeing the rapid-fire development of two sedans, a coupe, a crossover vehicle and an SUV that can be competitive in the U.S. market.

Bricklin said that Chery has engaged the Italian design houses Pininfarina and Bertone to design its U.S. models, and has contracted with the Austrian engineering firm AVL to develop new engines.

By most accounts out of China, Chery has considerable manufacturing capacity and well-equipped stamping, engine, transmission and assembly facilities. The company also seems to enjoy some favored status as an auto exporter by the Chinese central government in Beijing.

But actual vehicle prototypes for the American market will face rigorous scrutiny by U.S. regulators to meet safety and emissions standards. The level of manufacturing expertise at Chery is unproven for the demanding U.S. market. And the goal of having 250 dealerships up and running in 24 months time seems wildly optimistic.

Even the brand name that Chery cars will be sold under in the United States has yet to be decided upon. But Bricklin is characteristically confident that the 2007 timetable can be met.

"In order to bring a car into this country and set up distribution correctly, it's a two-year process," he said. "But if I dreamt this up I couldn't have done it better. We have tied everything together."


History-making attempt


Investment banker William McGrail, who has known Bricklin for 20 years, cautioned against betting against him.

"Malcolm is controversial, but his energy is incredible," McGrail said. "He can take more disappointment and heartache and keep coming back than any entrepreneur or businessman I've ever met."

Bricklin expects the automotive world to be skeptical of Chinese imports in the United States, just as it was when he brought in Subarus and Yugos. But with the signing of the Chery agreement, the aging automotive impresario believes he can make history.

"You know, if we don't make sure these cars are among the best in the world, we're going to get our ass handed to us," he said. "But if we do what we're supposed to do, this could be the deal that changes the industry."