Zotye's U.S. goal: No-hassle retailing

November 19, 2018 12:00 AM

Zotye USA's plan to start selling a Chinese-made crossover in the U.S. two years from now addresses common gripes from both consumers and dealers.

For consumers, Zotye USA executives say they will offer no-haggle pricing, online sales and affordable vehicles.

For dealers who elect to sign up to sell the Zotye crossover, there are no demands for expensive dealerships, something established automakers typically require.

Zotye (pronounced ZOH'-tay) aims to "really shake things up," said Bob Pradzinski, a longtime Hyundai Motor America executive who will head sales for the new entity.

Pradzinski: Make it work for all.

Zotye USA was created last month after parent company HAAH Automotive Holdings of Lake Forest, Calif., signed a distributorship agreement with the small Chinese automaker Zotye Automobile International Co. It plans to launch in 80 top U.S. markets and have 300 to 325 franchised dealers when its first vehicle, likely the T600 crossover sold in China since 2013, goes on sale, slated for the fourth quarter of 2020.

But there's a lot of work to do first.

Pradzinski, senior vice president of sales at HAAH and Zotye USA, and Duke Hale, a former Mazda and Volvo executive and now CEO of HAAH Automotive Holdings and Zotye USA, are working on recruiting dealers. Letters of intent are signed with some dealers. The company declined to provide their names or how many have signed up.

About Zotye Automobile International Co.

Origin: Created in Yongkang, China, in 2003

Acquired: In 2016 for 11.6 billion yuan ($1.7 billion) by Jinma Co., a Shenzhen Stock Exchange-listed company that makes parts and components for automobiles and construction equipment

Leaders: A group of professional managers dispatched by Jinma. Majority shareholder is Jinma parent company Tech-New Group, a private industrial company. Tech-New Chairman Ying Jianren, a native of Yongkang, and his family own a 43.5% stake in Zotye.

Aspirations: Industry leadership in vehicle electrification, connectivity and autonomous driving and to become an internationally competitive company, turning Zotye into a global brand, according to its website.

Export plans: Around 40,000 vehicles this year, up from roughly 25,000 in 2017

Zotye is not considering any company- owned stores.

"We really want to do this hand in hand with dealers. I think this idea of trying to sell cars and satisfy customers and companies saying they're only going to do it online, I just think that's not going to work," Pradzinski said. "You have to be customer-friendly; you have to be dealer-friendly. We're also going to be supplier-friendly and employee-friendly. The company has to work for everyone."

HAAH and Zotye USA aim to announce the first 20 or so dealers in about a month.

Hale and Pradzinski have held dealer meetings on the East and West coasts and are encouraging interested dealers to contact them through haahauto.com. They are seeking dealers with strong businesses, good sales volume and repair capability and high customer service scores. While Zotye mainly is focused on existing new-car dealers, it would consider individuals with extensive retail auto experience.

Not typical

But any who sign on also must recognize that Zotye USA plans to go to market in a different fashion than the typical franchised dealership, with regard to pricing and customers.

"We want dealers that buy into this fact that we're in the Amazon age and that, you know what, dealerships need to change," Pradzinski told Automotive News. "They're really going to have to buy into this process. People don't want the hassle anymore."

Pradzinski doesn't want customers in Zotye stores to worry about haggling and not knowing whether they got the best price. He wants to create an experience customers will love instead of them facing the typical bombardment by salespeople the minute they step onto a lot.

"That's what has to be changed," he said. "We have to make it a very customer-friendly experience."

Dealers will get only one vehicle to sell at first, a crossover that HAAH and Zotye officials did not disclose but was identified last week on HAAH's website as the T600.

Zotye Automobile International Co., with global sales of 317,000 vehicles last year and aspirations to become internationally competitive, said that, after launching the crossover in the U.S., it plans to sell sedans and electric vehicles here by partnering with HAAH.

Dealers will have realistic facility requirements, a longtime hot-button issue between dealers and automakers. The approach will be simple and minimalistic, Pradzinski said. Showrooms will include red and silver colors, "plain and basic, but very, very functional and not super expensive." Signage will be scaled back from pricey pole-and-monument signs some automakers require, he said.

Dealers could share the Zotye showroom with another brand or convert a used-car building to use. A Zotye dealer may be able to have a satellite store in a shopping mall or warehouse district that isn't as expensive as an auto mall row, he said. After all, today's shoppers are smart and know the cost of a fancy facility is built into the price of the product, Pradzinski said.

"We won't require Taj Mahals that are costing dealers millions," he said. "I think that's the fastest way to build a brand."

Website plans

Zotye plans a website to give customers "all the information you can imagine" about the vehicle, plus information typically available only at the dealership, such as how their credit score will affect payments, Pradzinski said. Online sales will be available to customers, but buyers would take delivery at a dealership.

"We are not going to do something online that takes a sale away from a dealer," he said.

Pradzinski said the company is in negotiations with major lenders to serve the brand, and it intends to offer a warranty.

Zotye faces "plenty" of challenges as it prepares to launch U.S. sales — including risk of a recession and of tariffs on vehicles coming from China, said Ivan Drury, senior manager of industry analysis for Edmunds. Tariffs could turn off some consumers even if the company picks up some or all of the cost, as Hale said last week was a possibility.

Marketing will be key, as perception of Chinese-made products varies, Drury said. And while aiming to be different through customer service and no-haggle pricing could work, there is still a widespread belief among consumers that negotiating saves money.

"The marketing approach is huge, and emphasizing those points is good. At the same point, it really comes down to the product," Drury said. "You could have a terrible experience but still purchase a car."

Rebecca Lindland, executive analyst at Kelley Blue Book, said Zotye will have to find risk-minded consumers willing to buy from an unknown company. Trying to break into the U.S. also poses risks for the company and dealers, she said.

"People just greatly underestimate the capital investment needed to penetrate the U.S. market," Lindland said. "If you're coming out with one car, you're competing against a behemoth, whether it's General Motors or Tesla, that are incredibly well-funded. Now you're asking dealers to commit to this one product for some period in time."

Red tape

HAAH and Zotye officials admit they have a lot to complete in two years, but they have started to work on state regulatory approvals to set up franchised dealerships. Zotye has been working with a consulting company for several months on vehicle homologation and is "very comfortable" it will meet safety, emissions and other certification requirements needed to sell an imported vehicle in the U.S. by the fourth quarter of 2020, said Chris Hosford, HAAH and Zotye USA's vice president of public relations.

Hale tried to call National Automobile Dealers Association President Peter Welch before Zotye's announcement last week to reiterate the company's commitment to franchised dealers, Hosford said.

NADA spokesman Jared Allen said Welch returned Hale's call but the two hadn't connected. The association just learned about the company and its aspirations last week.

HAAH and Zotye officials plan to attend the NADA Show in January in San Francisco, but it may be too late for Zotye to secure floor space.

The company has a draft dealer agreement, Pradzinski said, but wants input from dealers and NADA before finalizing it.

NADA has informally asked U.S. dealers how they feel about a Chinese automaker entering the U.S. and whether they would be willing to take on a franchise. The response largely has been positive, assuming those automakers deliver high-quality products, Allen said.

Guangzhou Automobile Group met with dealers at the NADA Show this year about the prospect of entering the U.S. retail market next year. A Guangzhou spokeswoman said it has not announced dealer network plans but still aims to debut the GS8 crossover for sale in the U.S. in late 2019 or early 2020.

Executives speaking at the Paris auto show last month dialed back Guangzhou's entry timeline likely to the first half of 2020, as the company considers the tariff issues between the U.S. and China.

Yang Jian contributed to this report.