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Will China's cars find a niche in Europe, U.S.?
2017/12/19
source: Reuters
After a decade of development, Chinese automakers are looking with greater ambition at selling vehicles in major Western markets.
 
 
After upgrading their design, technology and marketing, companies such as Geely, GAC and Great Wall Motor Co. have carved out a bigger share of their home market.

And that, in turn, gives them a better chance to survive in competitive markets such Europe and the United States. Once-distant dreams of staking a claim in Western strongholds may now be edging nearer.

¡°We have in the Western world an outrageous arrogance,¡± said Alain Visser, senior vice president of Lynk & Co, a new brand created by Geely. ¡°We think we¡¯re ahead. It¡¯s going to change. China is passing you at a speed that in our arrogance we don¡¯t even see.¡±

Hangzhou-based Geely aims to sell cars in Europe in 2019 and the United States a year later. The Lynk & Co premium brand, set up in Sweden with Volvo Car Corp., will spearhead its attack.

In 2010, Geely acquired Volvo from Ford Motor Co.

Geely plans to sell ¡°green¡± cars ¨C gasoline-electric hybrids, plug-in hybrids and all-electric models -- in Europe and the U.S.

Lynk & Co. will sell its cars online and through company-owned rather than traditional dealer franchises. It may also rent its vehicles via a subscription model similar to Netflix or Spotify.

GAC Motor, which has said it wants to enter the U.S. market by the end of 2019, may beat Geely to the punch. Unlike Lynk & Co, GAC is more likely to sell its vehicles through traditional franchised dealerships.

It has taken Chinese automakers years to get this far, and there will be significant road bumps, said Jeff Cai, a Beijing-based senior director at JD Power & Associates. ¡°

¡°A key obstacle in markets like the United States is a consumer bias against Chinese-made goods,¡± Cai said. ¡°Our research found most U.S. consumers think China is a third-world country that builds low-quality products.¡±

There is also the thorny issue of China¡¯s trade surplus with the United States, an imbalance that U.S. President Donald Trump has complained about. Cars shipped in from China would increase that surplus.

Geely¡¯s Lynk & Co aims to open its own flagship store in Berlin in the second half of 2019, and a similar outlet in San Francisco in 2020.

In U.S. states that don¡¯t allow direct sales, Lynk & Co will rent cars to consumers on contracts as short as one month. Those deals will include insurance, warranty and other benefits.

Visser says Lynk wants to test this unconventional retail model because it estimates that automakers with traditional dealership distribution networks lose 25 percent of their revenue through dealer margins and discounts.

He expects to recoup more than half those ¡®losses¡¯ by direct sales.

Some of those savings will be passed on to customers by selling Lynk & Co cars at a more affordable price, Visser said.

Lynk & Co aims to sell 250,000 vehicles a year across Europe and the United States, though he gave no firm timescale for that.

In the United States, direct sales could put Lynk & Co on a collision course with the politically powerful National Automobile Dealers Association, the lobby group for franchise dealers.

While Visser says NADA has ¡°unbelievable power,¡± he believes dealers eventually will accept Lynk & Co¡¯s retail model because franchise dealerships likely would service Lynk & Co cars.

New England launch?
For its part, GAC Motor may launch its U.S. operations in New England and New York, two people close to the company said.

That region is seen as being more open to foreign brands, they said.
GAC said it has not yet decided on a U.S. entry point, but would more likely opt to build a sales network with franchise dealers or join an existing dealer group.

GAC Motor said it is conducting market research to identify products for its U.S. business.

Its first U.S. offering is likely to be an SUV sold in China as the Trumpchi GS8. Given the political sensitivities, the model will be renamed for the U.S. market.

¡°We respect culture in the U.S. and understand there¡¯s no precedence to use the current president¡¯s name as a brand name,¡± the company said through a spokeswoman.