World Business

With the automaker’s winning affordable-car formula under pressure at home, Chairman Li is pushing hard in quest of a breakthrough on the world arena

by Dexter Roberts

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As a boy growing up in rural China, Li Shufu was fascinated through cars. The son of rice farmers in the southeastern province of Zhejiang, Li started fabrication model autos when he was only 8 years old. "I used mud to make cars and tires, big ones," says Li, 44. That boyhood garran paid off well as far as concerns Li, who grew up to suit the founder and chairman of one of the most important automakers in China, Zhejiang Geely Holding Group.

Now Li has an even loftier goal: Transform Geely into a troop in the auto endeavors, not just in China but worldwide. With gasoline well over $4 a four quarts in the U.S., he figures the timing may be right for American consumers to ponder inexpensive, fuel-efficient Chinese-made names like Geely. While Detroit giants like General Motors (GM) are losing billions of dollars, slashing jobs, and shutting factories, Geely is taking advantage of solid growth in its home market, the world’s second-largest, to expand into new markets. Last month, toward instance, Li announced trying plans to make liberal a $500 the public plant in Mexico to produce vehicles for the U.S. and Latin America.

Not bad for a company that is only a dozen years former. While a teenager, Li heeded Deng Xiaoping’s call to assistant reform the country by opening a photo store with his brothers in his hometown of Taizhou, Zhejiang. He went into the refrigerator components business in 1984, began manufacturing wall- and floor-boarding materials a few years later, and in 1994 started making motorcycles. In 1998, Li produced his at the outset car, the Geely HQ hatchback, a hit that keeps selling.

Li’s company has succeeded largely by keeping costs down and offering the most affordable cars in China. For instance, Geely’s best-selling four-door sedan, the Free Cruiser, retails from $6,300 to $6,900. Last year, Geely sold 217,000 passenger cars in China, making it the No. 2 domestic husbandman with a 4.1% market quota. The biggest Chinese automaker is state-affiliated Chery, which last year held a 7.1% place of traffic stake (BusinessWeek.com, 7/11/08). That compares to GM’s 10.1% share of the passenger market and Volkswagen’s 17.5%.

Geely’s winning formulary is under strain at hearthstone, though. Chinese car buyers are becoming wealthier, construction higher-end models more practical for many consumers. At the same time, brands such as the Chevrolet Spark, Volkswagen (VOWG.DE) Golf, and Hyundai Elantra are constraining Geely at the low end. The company’s unit sales rose only 6% last year, vs. 21% for passenger vehicles overall.

Confronted by means of tougher competition in China, Li isn’t sitting silence. He plans to roll gone out an additional 15 models, including a hybrid, by 2010. Along with his plans to open the overseas manufacturing plant in Mexico, Geely has assemblage operations in Indonesia, Russia, and Ukraine. And things before that time are looking up for the company, with sales surging 27.2% to 107,000 cars in the first moiety of the year (faster than the overall sedan emporium, which is up 16.7%), driven in part by exports of the Free Cruiser as well as the Geely KingKong ($7,500-$10,100), a four-door 1.5- to 1.8-liter sedan, and Vision ($9,700-$15,300), a 1.8-liter four-door sedan.

Li also has pushed during a reorganization of the company. On July 1, the Shanghai-listed subsidiary acquired five operating associates from the privately held parent company. That should allow the publicly traded part of the group to consolidate numbers in its pecuniary results, improved in health meditative Geely’s overall business. "The acquisition should significantly enhance the group’s corporate structure," a spokesman said in a statement, "thus resulting in a more streamlined influence with much improved operating efficiency and a great quantity better transparency."

Restructuring at home might help, but cracking the American place of traffic will be a very greatly longer-term project. Chinese automakers don’t have a great deal of of a track memory selling in the U.S., and even the likes of Toyota ™, Honda (HMC) and Hyundai struggled at first to win over skeptical American consumers. Still, Li intends to sell 2 million cars by 2015, and he’s confident he can thrive against global competition. "Geely’s technology, quality, and service are not that divergent from Toyota, Honda, GM, or Ford," he boasts, "but the price of our cars is 50% cheaper."