Chinese Company Intends to Build MG’s in Oklahoma By NICK BUNKLEY – July 12, 200

Question

Chinese Company Intends to Build MG’s in Oklahoma
By NICK BUNKLEY – July 12, 2006


DETROIT, July 11 -- Can the mystique of a British sports car be recreated by a Chinese company in America’s heartland?

That’s the bet by Nanjing Automobile Group, which plans to resurrect the fabled MG marque in a tricontinental demonstration of how truly global the automotive industry has become.

Nanjing, which purchased the assets of the bankrupt MG Rover Group last year, aims to be the first Chinese carmaker to open a factory in the United States. The company has scheduled a news conference for Wednesday in Oklahoma to announce plans to build a newly designed MG TF Coupe there, starting in 2008. It said the coupe would compete with cars like the Mazda Miata, which sells for $20,000 to $25,000.

It also will assemble a convertible TF Roadster version at MG’s now-shuttered factory in Longbridge, England, and three sedan models in China. American and European operations for MG Motors will be based in Oklahoma City, 90 miles north of the new factory in Ardmore, Okla.

MG’s rebirth under Nanjing, which said it had $2 billion in financing for the endeavor, comes as several Chinese companies are setting their sights on the United States, the world’s largest car market.

Several Chinese carmakers have said they are two to three years away from exporting vehicles to the United States. One, Geely Automobile, displayed a $10,000 sedan at this year’s Detroit auto show, although the car fell short of American safety and emissions standards.

Geely and Chery Automobile, a state-owned company that has sparred with General Motors over the similarity of its name to the Chevy nickname for the Chevrolet brand, plan to sell cars in the United States in 2008. Only Nanjing, however, has said it intends to build vehicles outside China, where it will face higher labor costs than in its home country.

"We want to be a global company," said Duke T. Hale, a former executive at Mazda, Isuzu and Lotus who will be chief executive of MG Motors. "We don’t want to be a company that simply exports out of China. We don’t want to be seen as just another Chinese car company."

Nanjing also is unique among the Chinese car companies in its plan to revive an established brand with a Western following. Mr. Hale called that a critical advantage the company held over its Chinese rivals. "I’ve got a brand name that still resonates," he said.

The company says its lineup will be true to MG’s heritage, to the delight of enthusiasts such as Roger Parker, a technical consultant with the MG Owners’ Club.

The club, run out of a large MG parts shop near Cambridge, England, has about 40,000 members worldwide. Many live in the United States, despite the brand’s 26-year absence here.

"If they don’t get the product right, they will certainly do damage that will be difficult to recover from," said Mr. Parker, whom Nanjing officials consulted about their plans. "It’s clear that they are very committed and very conscious of the rich history that they have bought."

MG’s limited appeal will ensure that Nanjing remains merely a niche player here.

But construction of the first Chinese auto plant in the United States, which will create more than 500 jobs, carries a great deal of symbolism about the industry’s future.

"It wasn’t very long ago that nobody believed the Japanese would build plants in the United States," said David E. Davis Jr., who co-founded Automobile magazine and now runs an online publication for car lovers called Winding Road. After Lee A. Iacocca, the brash chairman of Chrysler, challenged them to do so, Mr. Davis added, "they did, and they blew everyone’s pants off."

MG, originally called Morris Garages, began selling cars in the 1920’s. Its iconic TC convertible was a big hit in the United States after servicemen grew attached to earlier MG models in Europe during World War II.

"MG was really an integral part of the foreign car revolution that started in the late 40’s and early 50’s," Mr. Davis said. "They weren’t terribly good cars, but they were so different and they were so much fun to drive that we all forgave them for their lack of reliability and fragility."

The brand withdrew from the American market in 1980, leaving a generation of enthusiasts longing for its return. Sales continued in other countries as ownership passed through several hands, including Honda and BMW, until production ceased in April 2005 and all 6,000 workers at the factory in England were let go.

"It’s the first sports car that I remember as a child," said Paul Fucito, who grew up around the corner from an MG dealership in New Jersey and remembers its closing.

Mr. Fucito, 34, a spokesman for George Washington University, has never lost hope that he will one day own an MG, although the company’s bankruptcy last year raised doubts for him about the chances of that happening. He participates in several online forums devoted to the brand and fantasizes about a new MG, painted British racing green, with wire wheels and chrome accents.

"It’s been that dream car that I’ve always wanted," he said.

Several automakers have capitalized on demand for nostalgic nameplates in recent years, including BMW with its modernized Mini Cooper. Chevrolet has been deluged with requests to bring back the Camaro after it unveiled a concept version in January.

Jeremy Anwyl, president of Edmunds.com, a Web site that gives consumers advice about buying cars, said MG had the potential to join the list of successfully resurrected marques, as long as Nanjing kept quality high and prices low. "It’s not just a question of slapping an MG brand on something and expecting it to be an automatic success," he said.

Mr. Anwyl expects to see the new MG models sporting the brand’s distinct vertical grille and octagonal logo but without the flaws of earlier models.

"Hopefully some of the electrical problems you wouldn’t bring back," he said. "If you really want to go for nostalgia, you put on a leaky roof."



Copyright 2007 Addison-Wesley, A Pearson Education Company.

Chinese Company Intends to Build MG’s in Oklahoma
By NICK BUNKLEY – July 12, 2006


DETROIT, July 11 -- Can the mystique of a British sports car be recreated by a Chinese company in America’s heartland?

That’s the bet by Nanjing Automobile Group, which plans to resurrect the fabled MG marque in a tricontinental demonstration of how truly global the automotive industry has become.

Nanjing, which purchased the assets of the bankrupt MG Rover Group last year, aims to be the first Chinese carmaker to open a factory in the United States. The company has scheduled a news conference for Wednesday in Oklahoma to announce plans to build a newly designed MG TF Coupe there, starting in 2008. It said the coupe would compete with cars like the Mazda Miata, which sells for $20,000 to $25,000.

It also will assemble a convertible TF Roadster version at MG’s now-shuttered factory in Longbridge, England, and three sedan models in China. American and European operations for MG Motors will be based in Oklahoma City, 90 miles north of the new factory in Ardmore, Okla.

MG’s rebirth under Nanjing, which said it had $2 billion in financing for the endeavor, comes as several Chinese companies are setting their sights on the United States, the world’s largest car market.

Several Chinese carmakers have said they are two to three years away from exporting vehicles to the United States. One, Geely Automobile, displayed a $10,000 sedan at this year’s Detroit auto show, although the car fell short of American safety and emissions standards.

Geely and Chery Automobile, a state-owned company that has sparred with General Motors over the similarity of its name to the Chevy nickname for the Chevrolet brand, plan to sell cars in the United States in 2008. Only Nanjing, however, has said it intends to build vehicles outside China, where it will face higher labor costs than in its home country.

"We want to be a global company," said Duke T. Hale, a former executive at Mazda, Isuzu and Lotus who will be chief executive of MG Motors. "We don’t want to be a company that simply exports out of China. We don’t want to be seen as just another Chinese car company."

Nanjing also is unique among the Chinese car companies in its plan to revive an established brand with a Western following. Mr. Hale called that a critical advantage the company held over its Chinese rivals. "I’ve got a brand name that still resonates," he said.

The company says its lineup will be true to MG’s heritage, to the delight of enthusiasts such as Roger Parker, a technical consultant with the MG Owners’ Club.

The club, run out of a large MG parts shop near Cambridge, England, has about 40,000 members worldwide. Many live in the United States, despite the brand’s 26-year absence here.

"If they don’t get the product right, they will certainly do damage that will be difficult to recover from," said Mr. Parker, whom Nanjing officials consulted about their plans. "It’s clear that they are very committed and very conscious of the rich history that they have bought."

MG’s limited appeal will ensure that Nanjing remains merely a niche player here.

But construction of the first Chinese auto plant in the United States, which will create more than 500 jobs, carries a great deal of symbolism about the industry’s future.

"It wasn’t very long ago that nobody believed the Japanese would build plants in the United States," said David E. Davis Jr., who co-founded Automobile magazine and now runs an online publication for car lovers called Winding Road. After Lee A. Iacocca, the brash chairman of Chrysler, challenged them to do so, Mr. Davis added, "they did, and they blew everyone’s pants off."

MG, originally called Morris Garages, began selling cars in the 1920’s. Its iconic TC convertible was a big hit in the United States after servicemen grew attached to earlier MG models in Europe during World War II.

"MG was really an integral part of the foreign car revolution that started in the late 40’s and early 50’s," Mr. Davis said. "They weren’t terribly good cars, but they were so different and they were so much fun to drive that we all forgave them for their lack of reliability and fragility."

The brand withdrew from the American market in 1980, leaving a generation of enthusiasts longing for its return. Sales continued in other countries as ownership passed through several hands, including Honda and BMW, until production ceased in April 2005 and all 6,000 workers at the factory in England were let go.

"It’s the first sports car that I remember as a child," said Paul Fucito, who grew up around the corner from an MG dealership in New Jersey and remembers its closing.

Mr. Fucito, 34, a spokesman for George Washington University, has never lost hope that he will one day own an MG, although the company’s bankruptcy last year raised doubts for him about the chances of that happening. He participates in several online forums devoted to the brand and fantasizes about a new MG, painted British racing green, with wire wheels and chrome accents.

"It’s been that dream car that I’ve always wanted," he said.

Several automakers have capitalized on demand for nostalgic nameplates in recent years, including BMW with its modernized Mini Cooper. Chevrolet has been deluged with requests to bring back the Camaro after it unveiled a concept version in January.

Jeremy Anwyl, president of Edmunds.com, a Web site that gives consumers advice about buying cars, said MG had the potential to join the list of successfully resurrected marques, as long as Nanjing kept quality high and prices low. "It’s not just a question of slapping an MG brand on something and expecting it to be an automatic success," he said.

Mr. Anwyl expects to see the new MG models sporting the brand’s distinct vertical grille and octagonal logo but without the flaws of earlier models.

"Hopefully some of the electrical problems you wouldn’t bring back," he said. "If you really want to go for nostalgia, you put on a leaky roof."
Questions:


Why is the Chinese company Nanjing opening factory building vehicles in the US even though this will increase its labor cost?
What does this tell us about the market structure in which it is operating?
What macroeconomic benefit can you see coming from the opening of this plant?

Explanation / Answer

Why is the Chinese company Nanjing opening factory building vehicles in the US even though this will increase its labor cost?

Its obvious from the article that there is a certain amount of nastalgia from American consumers for this car brand. How would these loyal consumers feel about their brand being manufactured in China? I think the answer is that Nanjing is opening the factory in the US because they want it to remain to be seen as an American car company. I think they believe the loyalty they will gain from this decision will offset the added labor costs and give them a comparative advantage against companies like Chery.

What does this tell us about the market structure in which it is operating?

I believe this tells us that Nanjing operating in a Monopolistic Competition.They are competing in a market with a growing number of firms and so they are trying to differentiate their product by focusing on buyers who want a car built in the US.

What macroeconomic benefit can you see coming from the opening of this plant?

The greatest macro benefit for Nanjing is that they eliminate the risk of currency exchange by manufacturing and selling the car domestically. This will benefit the US's GDP and China's GNP.

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