Starting in 2004, Chinese automakers such as Chery, Brilliance, Zotye and BYD began talking openly about entering the U.S. Later, SAIC and Great Wall signaled their intentions and this year GAC announced plans. But where are the vehicles? What has prevented Chinese automakers from coming to the U.S.?
Are the Chinese really coming here?
It starts with the large differences in the Chinese and U.S. markets. In China, low price is the primary reason for buying. In the U.S., brands promise durability and technology.
Establishing a brand is no small challenge for Chinese automakers. Thus far, they have focused on design and EV technology and other vehicle attributes, but not on the essential reasons for purchase. Is it price? Value? Quality? Design? Technology? What will make that promise credible in the minds of U.S. dealers and buyers?
France's PSA Group, now making plans to re-enter the U.S. after more than two decades, has made brand development its priority followed by development of vehicles that can meet market needs. Chinese automakers, on the contrary, are seeking entry into the U.S. with their latest successful home country models.
In the U.S., safety, fuel efficiency, comfort, convenience and mobility technologies have been pushed to lower segments. U.S. manufacturers are likely two platform generations ahead in such technology. Unless the Chinese carmakers close this gap, while maintaining the price relationship to U.S. brands, they can expect only minor volumes in the near- and midterm.
Quality is another issue. To be sure, GAC and Geely's Lynk & CO brand have scored solid results on J.D. Power's 2018 Initial Quality Study for China. But real-world quality and long-term durability of U.S. brands is generally outstanding and is backed by warranties and policies far better than those in China.
Meanwhile, Chinese automakers have so far done limited vehicle testing in the U.S. Focused on delivered fit-and-finish, they have not sufficiently developed a database to validate their products to the durability level that U.S. customers demand. Their path parallels Hyundai Motor America's experience in the 1980s, with an outcome that could be similar.
Chinese companies considering the U.S. also must embrace U.S. dealership business models. China's dealers derive revenue mainly from new vehicles. In most cases, because of regulations, used-car operations, body shops and F&I departments don't exist.
The country's domestic automakers have an adversarial relationship with dealers. Franchised dealers have second- and third-tier stores with no connection or standards from the manufacturer.
Unless Chinese automakers learn about dealers and factory-dealer relations here, U.S. dealers will become disenchanted with the brands and will not commit to their sales success.
Dealer development must therefore become a top priority.
Chinese automakers export vehicles through separate overseas sales entities to primary distributors in other countries. With these distributors, brand image and identity, sales standards, aftersales service and parts remain largely uncontrolled by the carmaker.
In the U.S., the Chinese automakers have followed a quasi-distributor approach. They have not concentrated U.S. responsibility with a single subsidiary.
Instead, they have continued the domestic approach of siloed engineering, manufacturing and export sales. Without U.S. responsibility in the hands of a single subsidiary, as virtually all U.S. brands have organized themselves, they will never execute a suitable business, brand, strategic, vehicle, dealer, sales and market plan for the U.S.
The major function of a U.S. import subsidiary is to manage product, communications, strategic and market planning, product planning, pricing and dealer development.
But this project management function, so integral to meeting a launch objective for all disciplines, does not exist within Chinese automakers.
Subsidiary management is deferred to the company leader. The result is decision-making without consideration of the in-country subsidiary staff.
A strong project management function would enable a Chinese import brand to effectively manage entry into the U.S., including hurdles such as the tariffs imposed this year by the U.S.
With strong leadership, knowledgeable in all aspects of the U.S. auto industry, setting an executable launch date will become a reality rather than a vision.