Made in China, but Assembled in Bulgaria

A Steed model pick-up, which is part of the test produce of the Litex and Great Wall Co plant in Bulgaria's Lovech displayed before journalists inside the factory. Photo by Litex Motors

By Boryana Dzhambazova

The International Herald Tribune

Showcased in big glass boxes on strategically located sidewalks, a marketing display of shiny, brightly painted autos appeared in Sofia late last year.

Looking like a child's fantasy of a life-size toy car, each had a big white sign on the side: "Made in Lovech."

These were the first Chinese cars built in Bulgaria.

Late in 2009, Great Wall Motor started talks with a potential Bulgarian partner for construction of an assembly plant, its first in Europe, on abandoned farmland outside Bahovitsa, a quiet village near Lovech in northern Bulgaria.

The plant opened officially in February, turning out three models — the Voleex C10, a small five-door hatchback powered by a 1.5-liter engine; a pickup truck; and a sport utility vehicle. Prices start at 16,000 Bulgarian lev, or about ,400. The plant can produce as many as 50,000 cars a year.

For now, the Bahovitsa facility assembles cars from kits manufactured and painted in China. But plans call for welding and painting shops to be added over the next few years, to accommodate the entire production cycle.

The idea behind the investment is simple: Bulgaria, the poorest member of the European Union, offers low production costs, cheap labor and a flat tax rate of 10 percent, the lowest in the Union. Assembled in an E.U. member state, Chinese cars can enter the European market without paying customs levies.

Great Wall is aiming at the market for new-car buyers on a limited budget, both in Bulgaria and in the wider Union, and its price points are pitched to compete with similar models from established automakers like Fiat of Italy or Dacia of Romania.

Lubomir Stanislavov, editor in chief of the British Broadcasting Corp.'s TopGear Bulgaria automotive magazine, said the strategy might work.

"When you say Chinese, what comes to people's mind is low-tech, low-quality and unhealthy," Mr. Stanislavov said. "But in this case, it's actually the opposite. I don't know if any other automaker can offer better quality for this price."

Others are more skeptical. Bernard Nuvial, chief executive of Renault Nissan Bulgaria, which markets rival low-cost models produced under the Dacia brand in neighboring Romania, said Great Wall's limited model range would blunt its competitive edge.

"It's unlikely that the brand would significantly change the positions of leading brands in the Bulgarian market," he said in an e-mail. "So far, Chinese brands haven't managed to gain a stable position in Europe, where engine efficiency and eco function, as well as car reliability, are very important."

Taking a more positive view, Mr. Stanislavov argues that Great Wall's move into Bulgaria is a smart way to get a toehold in the E.U. market. Still, he conceded he had doubts about the economics of the plant, which he said would need to sell about 15,000 vehicles a year to be viable. That may not sound like a lot, but Bulgaria's entire new-car market was only 22,000 vehicles last year, down from more than 60,000 in 2008, before the global financial crisis and European recession.

Great Wall has hedged its bets by working in partnership with a local businessman, the Bulgarian oligarch Grisha Ganchev. Mr. Ganchev, who made a fortune from Bulgaria's transition to a free market economy after the fall of communism there in 1989, owns a string of businesses including a football club, sugar refineries, filling stations and Litex Motors, which reportedly put up 90 percent of the nearly ?160 million lev, or 4 million, investment in the Lovech plant.

The company plans to sell cars first in neighboring countries and then move into Western Europe.

Bulgaria is a good starting point to export automobiles for the European market, said Wang Feng Ying, Great Wall's chief executive, who came for the official opening of the plant in February. "All of our models have a chance to succeed in the European market," she added, according to Dnevnik, a local online publication.

Aleksandar Kostadinov, sales and marketing manager at Moto-Pfohe, an official dealership of Ford, Volvo, Jaguar and Land Rover in the country, said he welcomed the investment.

For Chinese producers starting to feel their way into the Europe market, "it's logical for the production process to happen in Bulgaria, a developing economy that offers production costs probably as low as those in China," Mr. Kostadinov said.

With low-end car markets stagnant across Europe, and carmakers struggling to winnow surplus production capacity, this might not seem the best moment to open a new plant. Yet Mr. Kostadinov said he believed there were niche growth opportunities, despite the crisis.

Great Wall is not the only auto company opening new plants in the region. Some years ago, Ford started production in Romania. In April, Fiat opened a new factory in Serbia.

The key, Mr. Kostadinov said, may be to persuade people to buy new cars instead of secondhand cars.

For decades under the communists, the only cars available were Soviet-made Ladas and Moskvitches and East German Trabants. When the Iron Curtain fell, Bulgarians were hungry for Western models they had seen only on television.

But in impoverished Bulgaria, few could afford new cars. To drive even an old, secondhand Mercedes or a BMW became a coveted sign of social status.

Used cars now account for most of the Bulgarian market. About 200,000 of them were sold last year, mostly imported from Western Europe. Bulgaria "is at the bottom of the ranking of new cars sales in Europe," Mr. Kostadinov said.

Great Wall hopes to change that.

With little established brand loyalty to overcome, Great Wall has a fair chance of competing against Dacia, Opel, Volkswagen, Toyota and Chevrolet, Mr. Stanislavov said.

"The price is really attractive. Plus, big brands don't have tradition in Bulgarian market, so I expect people will be willing to experiment with a brand that they haven't heard of until now," he added.

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