By on February 26, 2008

beiji26.jpgOr not. Despite all the noise about a Chrysler – Chery hook-up, despite Chinese manufacturers' presence at the North American International Auto Show, we have yet to see a single Chinese-built (let alone designed) vehicle here in the U.S. So, are they really coming? The short answer is yes, some of them, eventually. But not for quite a while yet.

The number one reason we haven’t see Chinese (or Indian for that matter) cars on these shores: home markets. Right now, the Chinese market is growing at a rabid clip. Local automakers are more concerned with increasing production and filling newly emerging gaps and niches than sinking scarce foreign currency into expensive export drives.

Before Chinese automakers look east (or south or west), their home market must reach a saturation point– a pause that may take a decade or more to realize. Sure, they may dip their toes in low-cost developing nations, but the real action is at home. Taking their eyes off the domestic market is a one-way ticket to marginalization.

This brings us to point two: there are a LOT of Chinese automakers and just one party running the country.  

You might think this could lead to issues of favoritism, once some of the makers make the leap abroad. That ain’t the half of it. Being a single-party government does not mean that the government has only one thought process (look at Chicago). Any Chinese maker looking to dive into the U.S. market must trust that China’s government officials will go to bat for them in international trade negotiations.  At the same time, the automaker has to worry about all the officials they DON’T own cutting them off at the knees (or worse).

There’s an even bigger problem with cracking the American market: the sheer scale of the undertaking.

To capture American market share, a carmaker needs dealers, parts, lawyers (lots of lawyers), national advertising, administrative staff, buildings, food, someone to keep the U.S. government happy and God knows what else. These are huge sunk costs.

Worse, all of these capital costs, goods and services must be paid in dollars– one case where a Chinese company’s main cost advantage cuts back at them.  Toyota and Nissan took 10 years to crack the American market. Hyundai took about seven to eight years to gain a toehold. And those are the “successes.” The list of car companies who failed in the American car market is long and illustrious, including Fiat, Peugeot, TVR and many more.  

Of course the Chinese could get a partner. After all, there are plenty of “joint” Chinese/foreign companies in their home market (and a few pure Chinese ones). And yet none have brought a Chinese-made vehicle stateside.

Again, their recalcitrance may be a matter of rational economics (make money in the booming market, don’t branch out). It may also represent a lack of trust re: reliability/build quality of Chinese-made vehicles. The dearth may also reflect a desire by Chinese companies not to give their “partners” leverage– in case they try to “nationalize” the subsidiaries.

But the biggest inhibition is history. Emigrating as a “captive” import has never been a path to American manufacturing glory. Isuzu just left, Suzuki hasn’t yet (but no one can really tell), Renault/AMC didn’t exactly set the world on fire. “Going it alone” would be a dangerous path for a Chinese automaker, but it at least offers the chance of success. The major players make lousy pimps.

Buying out an unsuccessful U.S. dealer network would seem to be the quick way around many of these problems. The problem here is with what’s available, or likely to become available soon.  Isuzu’s dealer network was nothing to write home about: sparse, truck-centered and closely tied to GM. On the other hand, if Chrysler should go on the block, it would be if anything, worse.

The first problem is scale. There are far too many Chrysler dealers right now (it’s one of the reasons they’re in so much trouble). As they stand, none of the Chinese automakers could fill a supply channel larger than Honda’s (with two to three times the dealers). Also, any procedure that sees Chrysler go on the block is likely to void most of the dealer contracts. “Chery”-picking may be possible once the dust settles. But in that case, there’s little difference from starting an all-new network (certainly not in terms of cost).    

All that said, the Chinese may still venture stateside. Believe it or not, failure will signal their arrival. Sooner or later, the Chinese market will stabilize—or tank (saturation, outside economic factors, government instability). Once the domestic market cools off, an established Chinese domestic car company or three will fail. Some of the survivors will merge. Others will look overseas for their survival. Then, the Chinese automakers will finally arrive in America, in force. 

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17 Comments on “The Chinese Are Coming!...”

  • avatar

    As for dealers, in my opinion there are still plenty of dealers whose very history is either being part of the early Toyota or Honda wave or who had an oportunity but declined to be a part of that and lived to regret it. My predication is that they will have no problem getting plenty of strong dealers who will pony up a small mountain of cash up front hoping to be a part of the next Toyota Honda etc.

  • avatar

    On a grand macro economic scale the Chinese government would probably not want money flowing out of China into business in the US that takes 10 years to turn a profit. The recent bad press with toys, dog food and other items would be amplified by horror stories about car problems as well

  • avatar

    The Chinese home market, although expanding, is already ferociously competitive. All of the global players like GM, VW, Toyota, etc. are aggressively expanding capacity, and putting serious financial muscle behind their marketing effort.

    Exporting cars abroad is already a survival tactic for Chinese automakers, but their biggest inhibition is not history, but rather quality. They know that their quality is not up to US or European standards, and they’ll have a tough time meeting safety and emission regulations. For now the Chinese are aggressively expanding into third-world markets like Africa, the Middle East, India, and SE Asia, where they might be able to get away with lower quality.

    Once a manufacturer makes the Great Leap Forward and produces a car that meets US/EU safety and emissions standards, and offers the quality and reliability levels their customers demand, you can bet that they will be here in force.

  • avatar
    Steven Lang

    The Chinese would be heavily supported by many of the larger dealer networks in the United States. That side of the business would pretty much be an automatic.

    The greater questions for the Chinese would be…

    1) Where would they perform their initial launch? Kia for example chose California and the West Coast for nearly it’s entire first year of operation in the United States.

    2) What market would they first attempt to compete? There’s a very good probability that a Chinese company would choose a product that’s simpler to design, manufacture and produce. A small car or a small pickup would likely be the first choices.

    3) Will they insist on stand alone dealerships? The larger need associated with this is access to prime real estate. Insisting on a stand alone dealership can effectively leave you out of those areas in certain markets. In nearby Dallas, GA (not a metropolis by any means), Chrysler had to settle for an out of the way location that’s not easily seen on the major road. Five years from now the landscape for this may be different. Then again, maybe not.

    There are hundreds, if not thousands of other issues that would need to be resolved as this article points out. Chances are the Chinese will have very good access to industry professionals and although their road may be rocky (not a pun on Daihatsu), they will have greater resources than any other entrant thanks to the Chinese government.

  • avatar

    When the time is right, why not just set up shop at select Walmart locations.

  • avatar

    I think an interesting solution to the quality problem would be if China actually adopted some respectable safety and emissions standards locally. Fat chance, I know.

  • avatar

    When the FAA approved the new Sport Pilot Regulations and the less strict Light Sport Aircraft rules, there was absolutely no shortage of dealers. Instantly, we had more new dealers than planes to supply them.

    Dealerships are easy to sell.

  • avatar

    Not going to fly. Quality isn’t good enough to compete with Kia, much less Toyota/Honda.

  • avatar

    It would take branding, marketing, and high desire for a China built car to sell well in the US.

    Take for example a Mitsubishi Eclipse. Those cars had some potential when they first came out. The turbo models. Take for example the new ones. No one wants one of those. An expensive dog.

    Now say for example the Mitsubishi Eclipse cost the same as a PT Cruiser($9788), and could beat Corvettes in the 1/4 mile. Performance for value.

    That’s where the money is. High performance that is affordable and desirable.

    If you can’t compete in the internal combustion world; why bother or try? Chinese government subsidizing lithium batteries similar to how the US subsidizes E85?

    I would love to smoke Corvettes at every stop light in my ~$10,000, made in China electric car. Any time, any day or night of the week. High performance electric is the future.

    Supposedly, several high profile OEM’s have some serious electrics in the works. They know Subaru, Nissan, and Mitsubishi have vehicles in the works(have been shown).

  • avatar

    Well, the Chevrolet Equinox and Pontiac Torrent are supposedly using a V-6 engine that is built in China. I wouldn’t be surprised if the first Chinese-manufactured vehicle to be sold in the U.S. were a “captive import” perhaps wearing a Buick or a Chevrolet badge.

  • avatar

    Why Indians and Chinese do not export to US. being from India and tracking the auto industry, Indian companies do export, but only to Europe and other non-US companies. This is because Hyundai and Suzuki (the two largest Indian car exporters) do have small car offerings for Europe. But they have had very limited success in bigger car market in India, let alone anywhere else. Toyota and Honda wallop them in bigger cars (City, Corolla, Accord, etc) and Toyota/Honda hardly will export these from India.

    Why not export to US: image, investment requirements, but most of all dodgy quality of Tata and Suzuki. Nano may make for good news, but Tata cars are unreliable, and quality improvements slow. Imagine the lawsuits and recalls if their cars stall on US highways. If they had the quality, they would have been in the US a long time back.

  • avatar
    Edward Niedermeyer

    At least in the short term the story here is: “It’s the currency, stupid.” The dollar is gonna be weak enough for long enough that starting up a new import franchise will suffer exchange losses which will prevent them from being truly competitive. Besides, small car manufacturing expertise plus hugely expanding markets for small cars in the developing world equals a far better option than trying to swim upstream into the tough and contracting American market.

  • avatar

    When the domestics are done falling on their swords for mismanaging themselves into oblivion the Chinese can just buy the used up shells and market their own cars as Ford/Chrysler/GM to their hearts content.

    I can already hear the Walmart shoppers getting all breathless.

    Chery? Chevy? What’s the difference anyhow? I’m not spending my money on either one. I guess Rental car companies will care.

  • avatar

    Will there ever be a day when they can just sell direct without dealers?

  • avatar

    The main problem here is that the US has a very effective protectionist mechanism-although it was created mainly by accident. Namely, the US has the most strict, and complicated, rules regarding safety equipment and pollution controls in the world. Oh, and the rules in the US are completely different from the rules anywhere else on the planet.

    Several Chinese makers sell cars in Europe, because their laws are simplier (maybe not weaker, but simplier), and match world standards. In fact, the number of automakers that sell SOMETHING in Europe is probably double that of the number in the US, even the though the US market, once you crack it, is bigger and potentially more profitable.

    None of the little Chinese players (or Indian, or Malaysian, or whatever) is big or skilled enough to successfully jump through all the hoops it takes to sell vehicles in the United States. Most of the ones who have done so (including the foreign makes) already sold vehicles in the US while many of the hoops were being formed (there basically have been no new mainstream entrants into the US market for at least a decade and a half, not counting the failed entry of Daewoo).

    At some point a Chinese car company will have the technical skills and financial stability to jump through all the hoops, and they will succeed. But not any time soon.

  • avatar

    I gotta say that if you think the Chinese and Indian companies can’t make it here because they can’t deal with the regulations, you need to do a little more research.

    The Mandarins invented bureaucracy.

  • avatar

    The direct sales model would seem to be the lowest risk/highest reward model. Tour the US at malls, Wal-Marts and college campuses with low cost shit boxes a la Hyundai 1987, and sell them with lots of content for a little money.

    The real issue would seem to be the high cost of safety equipment and testing.

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