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Business Observer Monday, Jun. 13, 2005 14 years ago

Made in China

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China is taking on Detroit with its new line of luxury automobiles at affordable prices. Sarasota's Bill Fisher is part of the Chery movement.
by: Adam Hughes Staff Writer

Made in China

By Sean Roth

Real Estate Editor

Bill Fisher says he had absolutely no choice. The Sarasota businessman abandoned his fast-track job with a Chinese trading company to take a pay cut for a key role in an automotive startup venture.

Fisher is the Southeast division dealer development manager for Visionary Vehicles, the brainchild of New York City automobile industrialist Malcolm Bricklin. Bricklin and China's Chery Automobile Co. have an agreement to import Chery's automobiles to the U.S. beginning in 2007. While the company likely won't be the first Chinese automaker to export vehicles to the U.S., it is the first to bring out a line of cars and SUVs targeted at mostly mainstream buyers.

Bricklin says Chery vehicles have "the soul of a BMW or Lexus, at prices between $19,000 and $30,000," according to a June 6 Barron's article.

The company is mostly following the business models of the Japanese and Korean automakers that expanded into the U.S. in the '80s and '90s. Visionary Vehicles plans to leverage the extremely low priced Chinese labor force combined with Italian and U.S. design teams to produce luxury cars.

It is no surprise that wages and benefits for Chinese auto workers are much lower than those in the U.S., Korea and Japan, but the amount of the wage disparity is huge. One news organization quoted an hourly rate of $22 an hour for Korean workers compared to just $2 for their Chinese counterparts. However, labor typically represents less than a quarter of the cost of assembling a car.

From a small home office in Palmer Ranch, Fisher is responsible for developing agreements with new dealers in nine states: Florida, Alabama, Arkansas, Georgia, Louisiana, Mississippi, North Carolina, South Carolina and Tennessee.

Fisher has a long history with China. He started out working as a regional sales manager for an electronics company in California.

"I was friends with a guy selling parts and equipment into Hong Kong," Fisher says. "One day we were talking when he asked if I would join him to help find parts to export. I had no problem leaving. I have generally never been afraid of risks in business."

In 1984, Fisher took his first trip to Hong Kong.

"Once you get past the border it wasn't noticeable (that it was a communist country)," Fisher says. "There weren't people there to watch over your shoulder. The big thing you notice is that unless you are in a big city the country is very poor. It was pretty much squalor. At that point most of China was still very agrarian. Most of the roads were terrible. The highways were mostly full with people on motorcycles or bicycles - mostly bicycles."

Aside from the obvious lower cost advantage, Fisher was surprised to find there was also far less crime than one might expect in such a poor country.

"People always say we live in the land of the free," Fisher says. "But freedom is really a relative term. If I'm over there my wife can walk through the city in the middle of the night and not have to worry about catcalls, someone stealing her purse or of being raped.

"One night I was walking down the street with a group of four guys behind me when it hit me, 'I don't have to worry that they're going rob me.' Here I am an American with a Rolex watch, who is obviously traveling international, but I didn't have to worry. That is a freedom we don't even have in the states."

He attributes China's low crime statistics to the country's strict punishment of criminals.

After that visit, Fisher realized he would be better served representing Chinese manufacturers in the U.S. Shortly thereafter, Fisher started Eastern Specialty Products Inc. The trade company specialized in representing both foreign and domestic circuit-board manufacturers.

In 1993, Fisher and his wife, Suzanne, moved to Sarasota. Fisher renamed Eastern Specialty Products as PCBsales.net because another Florida company had already incorporated under the former name.

Fisher's PCBsales.net company grew and last year, Fisher passed the company presidency to his wife so he could take a job working for a friend that ran the Hong Kong-based trading company Fornix Ltd. Fisher assumed the role of vice president of business development for Fornix.

Late last year, Fisher was on the verge of a burnout.

"It was at that point when I had something cross my desk about cars starting to come from China," Fisher says. "It was just a little news blip."

Fisher, a Detroit native, is a self-described car fanatic.

"My dad invented electronic side mirrors for cars," Fisher says. "That was the type of family I grew up in. I saw this and I'm such a car nut that I couldn't let it go. I was already working in China so I stared investigating it. From my time over there I knew a lot of the shortcomings for these type of businesses, but I couldn't find anything. I started out from the premise that this can't work, but I couldn't find a hole in the plan."

That led Fisher to talk to a car dealer friend.

"He owned four dealerships in Michigan, but had a home in Sarasota," Fisher says. "He liked the idea and introduced me to a group of about 20 other dealers. Unwittingly, I was doing dealer development for Visionary Vehicles. I called the company on the telephone to tell them what I was doing and they were very encouraging. I told them, 'I think I just created a position for myself in the company.' "

Officials with Vision Vehicles evidently agreed. In March, Fisher flew up to New York City to meet with company officials. A few weeks later he was officially hired to do dealer development.

If Fisher's two-year timetable sounds cushy, it isn't. Visionary Vehicles has prodigious growth planned. Starting with just 250,000 cars in 2007, the company plans to reach the million-car mark by 2011.

Even if the sales pitch sounds solid, the monetary costs facing new dealers is substantial. First dealers must pony up about $2 million to buy the territory. Fisher points out that that $2 million will also allow the dealers as a group to acquire about 30% interest in the limited liability company Visionary Vehicles.

"This is going to allow the dealers rather than venture capitalists to fund Visionary Vehicles purchase of 38% of the (existing) Chery factory," Fisher says.

On top of the $2 million, new dealers have to commit to either converting or constructing a new Chery dealership location in each territory. Altogether prospective dealers are looking at a financial commitment to the fledgling venture of about $8 million. Then there is the two-year wait for the first car line.

But Chery and Visionary Vehicles have backers as well. One of the biggest financial partners in Chery's current venture is the Chinese government.

"The Chinese are not going to let this fail," Fisher says. "Not just because of the money they have on the line, but mainly because of the emotional impact it could have on the future of exports."

Chery, one of the top five Chinese automakers, is experienced with competition from U.S. manufacturers. Many of the top performing automakers in China have a connection to the U.S. Big Three, including the top Chinese automaker Shanghai Automotive Industry Corp. Group, which is a joint venture with General Motors. Chery has been sued for allegedly producing carbon copies of the GM South Korean unit's popular QQ minicar. Fisher says GM's legal department has already complained about the similarities between the company name Chery and its Chevy brand.

"The Big Three are doing anything they can to make things difficult," Fisher says. "They are at a distinct disadvantage. We have a tremendous price advantage. We get that (labor) discount when we decide to increase the manufacturing."

But as with other industries Chinese companies enter, Chery faces likely opposition from unions, industry groups, pro-democracy groups and others.

"I have worked for the Chinese for years now," Fisher says. "I know there is the fear that these guys are communists and that it's going to spread. I have to tell you it's business that is driving the politics now. They have telecommunications, the Internet and movies.

"At the same time, in the U.S. we have to recognize that we represent roughly 6% of the world's population, but we consume about 66% of the world's goods and services. Eventually we are going to have to learn to share. The Chinese are our brothers and sisters. ... They have every right to same level of comfort and niceties. I don't feel at all bad about taking jobs to China. In the short run, the U.S. is probably going to drop a few notches on the economic scale. Then things should equalize a bit and manufacturing will move more back to local markets."

Paul Lambert, president of North American marketing and chief of staff for Visionary Vehicles, says that overall the new company will create a net gain in jobs in the U.S.

"We figure even at 1 million cars we will probably only displace about 3,000 factory jobs," Lambert says. "With 250 dealership and about 75 employees per dealership plus marketing, we are probably creating a net gain of about 20,000 jobs stateside."

Responding to the hot automotive trend of the moment, Fisher says Visionary Vehicles/ Chery plans to introduce a hybrid in 2009.

"We actually have an advantage in that technology because most of that battery technology is being manufactured in China," Fisher says.

In Desoto, Manatee and Sarasota counties, which is part of one territory, Fisher says, he is in discussion with four dealers, two of which already have local car dealerships. Similarly, in a territory that extends from Tampa to Lakeland to near Orlando, Fisher is reportedly in talks with three dealers.

"We are making this decision somewhat on a first come, first serve basis," Fisher says. "At the same time, we are looking for best-of-breed dealerships."

Vern Buchanan, owner of Sarasota-based Buchanan Automotive Group that owns 18 automotive dealerships in Florida, Kentucky and North Carolina, says the Visionary Vehicles proposal is intriguing.

"It does seem to me inevitable that China is going to start importing cars to the U.S.," Buchanan says. "(Visionary Vehicles officials) are talking to us about doing a certain region or maybe the entire state of Florida. It is appealing, the idea of being able to offer a car comparable to a Honda but at third less. That's a pretty huge competitive advantage."

But Buchanan worries that Chery, which has never produced more than 100,000 vehicles, could run into problems with supply or pricing. He also says that the Visionary Vehicles franchise dealership arrangement could make the new dealership too financial risky.

"There are also some questions about the warranty," Buchanan says. "Namely, who will eventually pay for work under the warranty? The franchise setup is also pretty unusual. It sounds like the company might have somewhat limited resources. (The company) is trying to have dealers provide the capital to finance the organization. In most situations, even in most franchise relationships, there is no fee for a territory. The dealer basically just pays the company when it buys the products. We had one of our franchise companies go out of business and we took a hit. That was without having $2 million on the line. (However) I hear there is some flexibility (in the possible business relationships.)"

Fisher, who is working to resolve Buchanan's concerns, says that aside from the obvious enjoyment of the new venture, his area of expertise hasn't changed all that much.

"I'm still working with China," Fisher says. "I probably gave up a pretty good future; the gentleman, (who owned Fornix) sold his last company for $500 million. I didn't take this because I needed a job. I always told myself that when I had enough money I would get into the car business. This is something that I'm excited about when I get up in the morning."

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