Selling Chinese cars in U.S. proves to be an elusive goal

LOS ANGELES — Just as the coronavirus pandemic was plunging the U.S. auto industry into crisis and stripping millions of car sales from stunned retailers, Duke Hale was searching for American factory space to assemble Chinese crossovers for his Southern California startup.

Hale, CEO of HAAH Automotive Holdings, partnered with China's Chery Automobile Co. this year to bring a new U.S. brand — called Vantas — to life, even as pandemic uncertainties swept across the industry. But just as remarkable, HAAH and Chery are aiming to succeed at something that half a dozen Chinese brands have failed at since about 2005: entering the U.S. market.

The arrival of Chinese brands in America — following in the footsteps of German, Japanese and Korean automakers — has been imminent for nearly two decades. That includes a failed attempt by Chery in 2005 to bring cars to the U.S. with the help of auto entrepreneur Malcolm Bricklin, who helped establish Subaru of America in the 1960s and Yugo in the 1980s.

The Yugo improbably made it to American shores from an obscure factory in Yugoslavia. Vehicles from China — now the world's largest auto market — have not.

Among the Chinese brands that have announced a U.S. launch before pulling back: Chinese automakers Zotye, GAC, Great Wall, Chery and Geely. A separate Geely brand, Lynk & CO, has said it would launch in the U.S. in 2021 but has not announced steps toward doing so. Additionally, several Chinese and Chinese- funded electric vehicle brands have expressed interest.

"I don't know of any other business expansion effort that has been in the works for as long as bringing Chinese automobiles to the U.S.," said Karl Brauer, executive publisher of Autotrader. "It doesn't mean it's never going to happen. But if people in the industry seem skeptical, they have very good reasons."

Why is this effort so elusive?

Michael Dunne, CEO of ZoZo Go consultancy and a leading industry voice on U.S.-China auto dealings, believes it has less to do with the Chinese and more to do with the challenge of getting through the great wall of America.

"When they cast their eyes on the U.S. market, it's so big and so profitable that it has an irresistible attraction for Chinese automakers," Dunne told Automotive News. "When they arrive on the California coast and set up their office, they find that it's impenetrable. And that's when they often make a U-turn and have to rethink it."

Chinese automakers have stalled in the U.S. for a variety of reasons. One has been that an easier and more attractive growth opportunity was beckoning in the home market of China, where vehicle sales ballooned to 28.9 million in 2017. Chinese producers often weren't motivated to do the heavy lifting needed to break into U.S. retailing, where success might take decades, when there were easier pickings at home.

Another challenge: U.S.-China trade friction has raised the stakes on how to operate here, Dunne said. In past decades, foreign automakers entered the U.S. purely as imports, without needing to first build U.S. factories to localize their production. But that option is not viable for Chinese manufacturers, given tensions about U.S.-China trade imbalances.

"The window for exports from China into the United States is closed," he said. "If they want to sell them in the U.S., they need to build them in the U.S. It's not good enough to just bring in a model at a 20 percent discount to what the Japanese and Korean brands are offering."

To be sure, there are some Chinese-made vehicles selling in the U.S. today. The imported Buick Envision and Volvo S90 face stiff 27.5 percent tariffs imposed by the Trump administration as part of its trade battle with China. Volvo Car Corp. is owned by China's Geely Holding. Before it acquired Volvo in 2010, Geely participated in the 2006 Detroit auto show, showing a small car called the CK that it said it would introduce in the U.S. starting in 2008 under the Geely brand name. That never happened.

Some obstacles have been purely financial or operational, especially as Chinese economic growth slowed and made overseas investments less appealing.

Cracking the U.S. market is now the goal of several hopeful Chinese-funded alternative-fuel vehicle startups, such as California-based electric vehicle ventures Faraday Future and Karma Automotive, which has produced a small number of its hybrid sports car, the Karma Revero. Chinese companies Nio and Byton also want to enter the U.S. to take on Tesla. Both have announced intentions to sell in the U.S. within a couple years.

Faraday was created in California by a Chinese high-tech entrepreneur, Jia Yueting, in 2014 to produce luxury EVs. It unveiled the FF 91 at CES in 2017. Later that year, amid financial squabbles in China, Jia abruptly left the country to take up residence in Los Angeles. Faraday set out to construct a $1 billion assembly plant in Las Vegas to build its U.S. vehicles. It canceled that plan to instead renovate a smaller industrial site in California.

The Faraday project has gone through financial setbacks and management shuffles and is now trying to raise a new round of funding to continue its business plan.

The Chinese government wants automakers to succeed in the U.S. As the home market has cooled from its peak a few years ago, creating excess manufacturing capacity, there has been greater pressure from the government for companies to export.

Chinese automakers have had success in Asia, Africa and Latin America. Chery, the largest Chinese auto exporter, has a factory in Brazil. JAC Motors is part of a joint venture in Mexico that assembles crossovers for the local market and for export. The same venture makes FAW commercial vehicles at a plant outside Mexico City.

"Suddenly, there is a renewed urgency and a real need for the first time to look outside their home market," Dunne said. "That's one reason to begin to believe that the Chinese this time are more serious and may actually try to make it happen."

Chinese automakers are targeting Western Europe as their first big mature market before turning to the U.S. Among them: the SAIC group that sells vehicles in the U.K. under the MG brand; Great Wall, which expects to start in Germany by the end of 2021; and Lynk & CO, which plans to launch this summer, according to Automotive News Europe.

But Richard Oppmann, president of consultancy VCG Global, said the only way Chinese automakers are going to be successful in the U.S. is to form a subsidiary here and establish marketing, quality control, financing and dealer networks, rather than relying on distributors.

"Every other organization that comes over here to the U.S. to sell cars establishes themselves as a wholly owned subsidiary," said Oppmann, who consulted for Great Wall Motors when it was looking to get into the U.S. several years ago.

"And the reason for that, of course, is to shorten that customer-to-factory relationship that is so important in the automotive business. You can't have that going through a distributor."

HAAH's executives come from throughout the U.S. auto industry and have experience running a U.S. sales and marketing company.

Jan Thompson, HAAH's executive vice president of marketing, has worked with Nissan and Fiat Chrysler, among other automotive companies, in her career.

"It takes a number of things," Thompson said, referring to how HAAH intends to go to market. "It's not just the pricing, it's the HAAH philosophy. No haggle, no hassle, one price, totally digital. The easiest way you can buy a car."

Add a 15 to 20 percent discount over competitors, and you have retail disruption, she said.

Sales are expected to begin by the first quarter of 2022.

But the company is having to be flexible.

It originally planned to launch U.S. sales through an agreement with Zotye Auto, selling crossovers imported from China. HAAH started recruiting U.S. dealers in 2018. That was about the same time that Zotye's bigger Chinese rival, GAC Motor, also was pitching its business model to U.S. dealers.

GAC suspended its U.S. efforts in 2019, citing U.S.-China trade tensions.

In May, HAAH said it was suspending its plan to import Zotye vehicles because of Zotye's financial troubles back in China.

Zotye tried previously to break into the U.S. with the backing of a dealership group. At that time, it was selling an electric crossover.

Hale said using Chery to create the Vantas brand will help to distinguish the U.S.- assembled vehicles from their Chinese counterparts in the minds of consumers.

"It's an American brand, assembled by Americans, with global parts from all over the world," said Hale, whose career includes stints at Chrysler, Ford, Isuzu, Mazda and Volvo. "We see it as American."

In the face of the setback with Zotye, HAAH has offered dealers who signed up for Zotye franchises the right to a Vantas franchise with no additional payment. HAAH also has a second Chinese brand in the wings to follow Vantas, but the distributor has not revealed its name.

Oklahoma City dealer Larry Battison, who swapped his Zotye franchise for Vantas, said he prefers Vantas because of its U.S. connection.

"We're excited about having cars built in the U.S.," he said. "That is huge."

Battison, dealer principal of Battison Honda in Oklahoma City, also is impressed with the one-price business model from HAAH and the deep experience of its leadership team.

"These guys have pretty solid backgrounds," he said. "I think they know what they're doing."

His daughter, Courtney Battison, will be the dealer principal for the Vantas franchise.

Another dealer, who asked not to be named because he is still deciding whether to sign with HAAH, said he has an empty facility to use for it but doesn't want to pay the sky-high prices to put in an established brand.

Rather than gasoline-powered cars from Vantas, he said, he'd rather sign on with an EV maker. Either way, it's a roll of the dice, he added.

Whether Vantas becomes the first major Chinese automaker to break into the U.S. is also up in the air. Other Chinese automakers are waiting in the wings.

"They are either going to differentiate on the low end with internal-combustion vehicles, or they are going to differentiate on the high end with electric cars, autonomous cars, connected cars," Dunne said. "It's low price or next-generation technology."

Brauer, from Autotrader, believes it is just a matter of time.

"At some point, a Chinese company will show up on U.S. soil and it will be sold with a Chinese name," he said. "But before that, you'll see more efforts to partner to bring in Chinese models that may or may not have a Chinese name."