China's cheap car strategy for the U.S.

SHANGHAI -- How much will a Chinese brand need to discount its cars to succeed in America?

Wu Song, general manager of aspiring U.S. entrant Guangzhou Automobile Group Motor Co., says he has that magic number: His cars will have to be priced 30 percent cheaper than rivals in the same segment.

If everything goes his way, Wu will be testing his bargain-basement pricing strategy with the U.S. launch of his company's GS4 crossover sometime in 2017.

"We are confident. It could be popular in the market," Wu told Automotive News at the Shanghai auto show. "Considering the low price, it should be competitive."

The company's top executive already is seeking U.S. dealers, importers and distributors.

Guangzhou Automobile, which goes by the abbreviation GAC, is the latest Chinese automaker floating plans to sell made-in-China cars in the U.S., following similar pronouncements by Great Wall Motor Co. and BYD Auto Co.

Skeptics often pooh-pooh such goals, noting the many Chinese brands that have pledged to be on sale in the U.S. in two or three years but still aren't. But Wu's comments shine a light on the pricing calculus they are working with.

With no true bargain brands left in the U.S. market, Chinese brands see room to make a pure price play.

The GS4 represents the latest GAC has to offer. It was launched in China on April 18, priced between 99,000 and 146,800 yuan ($16,245 and $24,088). GAC aims to sell 120,000 a year there.

In the U.S., it would go up against such entries as the Toyota RAV4, which starts at $24,565, including shipping, just above the GS4's price range.

Wu says his offering boasts better fuel efficiency, more power and a roomier interior than the RAV4. The GS4 consumes 6.3 liters per 100 kilometers under China's testing cycle, Wu said. While that can't be directly converted to an EPA rating, it equates to about 37 mpg. The RAV4 gets a city-highway combined 26 mpg.

Wu said he is "90 percent confident" GAC will bring the GS4 to the U.S.; his "wish" would be to begin sales before 2017. But first he needs to sign up dealers and importers and get the car certified for sale in the U.S. "The most important thing is finding a partner," he said.

But James Chao, managing director for Asia Pacific at consulting firm IHS Automotive, said it will be difficult for any unknown brand, no matter where it is from, to crack the U.S. market.

Chao noted that a 30 percent "China discount" would be less than the markdowns of up to 40 percent that China brands must offer against global brands in their home market.

"My initial reaction to the 30 percent is that it's way too small," Chao said. "I'm not optimistic. It's a real challenge for an unknown brand with an unknown track record."

Still, some U.S. dealers might roll the dice on the brand, possibly putting GAC's car up against used vehicles, Chao said.

A better U.S. entry strategy, he added, might be that of China's Zhejiang Geely.

Geely bought Sweden's troubled Volvo brand and plans to export a China-made long-wheelbase version of the Volvo S60 sedan to the U.S. this year. Geely might then be able to slip into the market under Volvo's premium mantle, Chao said.

Separately, Reuters reported from Shanghai that Geely plans to build a small SUV late next year that will go on sale in China in early 2017, several European markets a year or so later, and eventually the U.S.

GAC exhibited at the Detroit auto show in 2013 and 2015. This year, it showed the GS4 and an autonomous hybrid concept.

GAC has no plan to export to western Europe because the market there is not stable, Wu said. The company already has exported a small number of cars to the Mideast and also plans to export vehicles to Southeast Asia.

Yang Jian contributed to this report.