A joint venture between Chery and Argentine group Socma headed by Franco Macri will enable two Chinese models to be made and marketed under Mercosur (South American) rules for the first time.

The deal for Uruguay assembly of two vehicle models involves an initial investment of $US100m, with a 51% stake held by Chery.

Uruguay was chosen, even without any strong industrial tradition, because Macri already has facilities in the country, where Fiat and Peugeot models were produced until the late 1980s.

Since local content is planned at just 40% in the first year of production, current plans foresee a start of sales by mid-2007.

The forecast includes 10,000 duty-free export units for Brazil and Argentina. Until 2010 the volume will be 25,000 a year, when local content should reach 60% (including parts, labor and taxes).

A compact 4x4 SUV, the Tiggo, and a subcompact, the QQ, are first two planned products, at estimated prices of $24,000 and US$ 8,000 respectively, quite competitive in these markets. Two thirds of sales will be of the more affordable model.

Ambitious plans include a bigger plant for up to 200,000 units yearly after 2010, which could be built either in Argentina or Brazil. A decision will be taken "at the opportune moment", according to Socma director Leonard Maffioli.

The only domestic automaker with 100% Chinese capital, Chery is controlled by the of Wuhu city and Anhui state governments. According to Yu Boachen, an executive aide, the company will produce 400,000 units this year, and export to 53 countries. In addition to China, it operates assembly lines in Russia, Malaysia and Egypt.

Negotiations with the Argentine partner took two years. However, Chery choose not be at the São Paulo international motor show, held only a month before the joint venture's official announcement.

Traditional Oriental prudence, perhaps?

Fernando Calmon