Wednesday, December 22, 2010

China to Box and Ship Great Wall to Bulgaria

You read that correctly, dear reader, though it’s not what you think. We’re not talking about the Great Wall, we’re talking Great Wall Motor [sic], a Chinese automaker that builds everything from sedans to pickups to hatchbacks and SUVs - some of which will bring to mind [sic times two] models from other European and Japanese carmakers. And, by mid-year 2011, Great Wall Motor will have a factory in Bahovitsa, Bulgaria! Yippee!

If you, like me, know only a few things about Bulgaria, here’s a little summary from the CIA World Factbook: it sits between Romania and Turkey; it has a population of around 7 million; Communism was dropped in 1990; the country joined NATO in 2004 and the European Union in 2007 and its primary exports are clothing, iron and steel, machinery and fuels. Fascinating!

The new plan is the brainchild of Bulgarian tycoon, ex-wrestler and self-professed patriot Grisha Ganchev. Mr. Granchev’s Litex firm raised 90% of the €97 million (US$130 million) needed the build the plant, with Great Wall providing the last 10. The plant is expected to generate 1,220 jobs and build some 50,000 vehicles from knock down kits a year.

Plamen Likyov, the production manager at Litex states, presumably reflects the views of many Bulgarians when he says: “The local people hope that this factory will mean work. The global economic crisis is felt here like everywhere, and many jobs were lost.”

However, it’s not all champagne and roses for Great Wall’s Bulgaria investment. David Sedgwick, the editor of Automotive News China, is convinced that Chinese automakers are not even close to challenging their European competitors. He explains why the Bahovitsa plant is unlikely to make waves:

“They bring in the kit and reassemble the car, and there’s not a lot of automation. You really want to pay attention when it’s a full-scale assembly plant. They can cost $500 million to $1 billion. When you see a Chinese automaker taking on that kind of investment, then you know they are serious.”

And there’s more, from Jonas Parell-Plesner, a senior policy fellow at London’s European Council on Foreign Relations:

“I think they invest in countries where they don’t expect a backlash.”

Ouch. The Bulgarian auto market isn’t exactly booming either, with just 26,813 cars being sold in 2009 and 57,927 the year before. It will be hard for any new manufacturer to make waves, especially against strong European competition.

Alexander Dimitrov, a sales manager at one of the nation’s Renault Dacia dealerships, explains:

“Bulgarians use cars to make an impression. They would rather buy a 10-year-old Mercedes than a new Chinese car.”

Mr. Granchev and Great Wall are undeterred, however. The Bulgarian multi-millionaire is convinced there’s a market for Chinese cars at the low end of the market. Andy Liu, Great Wall’s Deputy Head of European Marketing, agrees:

“Our equipment will be very good and our price will be very competitive. That’s a characteristic of Chinese manufacturers.”

One of the firm’s models, a sedan, is likely to sell for €5,000 (US$6,588), undercutting the Romanian built Dacia Logan by about €1,000 (US$1,318). A Great Wall spokesperson told the New York Times that the company would be setting up a dealer and parts / service network in the country, probably with the assistance of local importers.

Only time will tell whether Mr. Granchev’s investment will be more fruit than folly.


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