Chinese cars set to hit Western roads

Updated 2017-12-22 13:30:20 Global Times/Agencies

Better design, technology offer chance to 'survive' in Europe, U.S.

After a decade of development, often through buying or benchmarking foreign technology and know-how, Chinese automakers are looking with greater ambition at selling their cars in major Western markets.

Improvements in design, technology and marketing at companies including Geely, GAC Motor and Great Wall Motor have brought them a bigger share in their home market, the world's largest, and offer a better chance of survival in competitive markets in Europe and the U.S.

Once distant dreams of staking a claim in Western strongholds may now be edging nearer.

"We have in the Western world an outrageous arrogance. We think we're ahead. It's going to change," said Alain Visser, senior vice president of Lynk & Co, a new brand set up by Geely.

"China is passing ... at a speed that in our arrogance we don't even see," Visser said earlier this month.

Geely, based in Hangzhou, capital of East China's Zhejiang Province, which owns Volvo Cars and Lotus and makes London black cabs, has its sights set on selling cars in Europe in 2019 and the U.S. a year later. The Lynk & Co brand, set up in Sweden with Volvo, will spearhead its attack.

Geely plans only to sell green cars - conventional hybrids, plug-in hybrids and all-electric models - in those markets, and it will primarily sell them through directly owned stores and online rather than through traditional dealer franchises. It could also offer rental cars via a subscription model similar to Netflix and Spotify.

GAC Motor, whose parent Guangzhou Automobile Group works with Honda Motor, Toyota Motor and Fiat Chrysler in China, may beat Geely to the U.S. market, eyeing entry by the end of 2019. But unlike Lynk & Co, GAC is more likely to sell through a traditional distribution network of franchised retail stores.

It has taken Chinese automakers years to get this far, and there will be significant road bumps.

"A key obstacle in markets like the U.S. is a consumer bias against Chinese-made goods," said Jeff Cai, a Beijing-based senior director at U.S.-based global market research firm JD Power.

"Our research found most U.S. consumers think China is a third-world country that builds low-quality products," Cai noted.

There is also the thorny issue of China's trade surplus with the U.S. - an imbalance high on U.S. President Donald Trump's radar. Cars shipped in from China would likely increase that surplus.

Selling direct, online

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 some U.S. states, which don't allow direct selling, Lynk & Co plans a subscription-based sales model, renting cars to consumers on contracts as short as a month. Those deals will include insurance, warranties and other benefits.

Visser said that Lynk wants to test this unconventional retail model because it estimates about one-quarter of revenue is lost through the traditional distribution business in dealer margins and discounting. He expects to recoup more than half of that by selling direct.

Some of those savings will be passed on to customers by selling Lynk & Co cars at a more affordable price, Visser said, adding Lynk & Co aims to sell 250,000 vehicles a year across Europe and the U.S., though he gave no firm timescale for that.

In the U.S., selling direct could put Lynk & Co on a collision course with the politically powerful National Automobile Dealers Association (NADA), the lobby group for franchise dealer operators.

While Visser said that NADA has "unbelievable power," he believes dealers will eventually come around to Lynk & Co's retail model as it would likely be franchise dealers who get to service Lynk & Co cars, carrying out repairs and regular maintenance, and where dealers make the most money.

No Trumpchi for U.S.

GAC Motor is looking at the possibility of building out its overseas presence from the northeast of the U.S., two people close to the company said.

That region, including the states of Massachusetts, Connecticut, Maine and New York, is seen as being more open to foreign cars and to the sport utility vehicles (SUVs) that GAC Motor plans to sell, they said.

The company 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 - which said that it has developed rather than acquired its technologies - said it was conducting market research to determine the brand's positioning and 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 precedent to use the current president's name as a brand name," the company said through a spokeswoman.

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