February 5, 2018 — One of the splashier stories coming out of this year’s Detroit Auto Show is the prospect of the Guangzhou Automotive Co. Group (GAC) entering the U.S. market sometime in late 2019. And in a few weeks, representatives from GAC Motor will be in Las Vegas at the National Automobile Dealers Assn. (NADA) recruiting dealers in an attempt to build a retail network to sell its vehicles here.
We’ve seen this rodeo before — certainly over the last 14 years history has not been kind to new brands attempting to enter the U.S. market. More often than not, the attempts fizzle out before getting off the white board. Some efforts have made it as far as getting investments from dealers hoping to be on the ground floor of the the next Toyota or Honda. Others have made it to the retail phase actually selling vehicles here — but they end up being non-profitable, cash-draining exercises in futility.
Aro and Mahindra
In 2004, it was the Aro, a Romanian-built SUV, rebranded as the Cross Lander, that took dealers for a ride. An earlier attempt in the 1990’s to bring the SUV to the U.S. also cost early dealer investors thousands of dollars. Both initiatives were led by Miami dealer John Perez, who also lost hundreds of thousands of dollars for his efforts. Perez then tried to bring Indian manufacturer Mahindra to the states, allowing dealers who had invested in the Aro brand to roll their investments into the new plan.
But by 2010, the Mahindra plan was also in shambles due to a dispute with Perez’s company Gobal Vehicles, which ended up suing the Indian automaker. Some dealers lost as much as $200,000. Litigation from lawsuits filed against Mahindra by several dealers is ongoing.
And there is the saga of Chinese automaker Chery. In January 2005, Malcolm Bricklin (then of Subaru and Yugo fame) held an unscheduled and unsanctioned press conference in the lobby of the Detroit Auto Show touting his new company, Visionary Vehicle’s partnership with Chery to bring Chinese-built vehicles to the U.S. Bricklin convinced as many as 28 dealers (he wanted 250) to pony up a $2 million franchise fee for the rights to an exclusive territory in the U.S.
The venture fell apart when a Visionary employee secretly started another company and cut a side deal with Chery to freeze Bricklin out. Over the next few years, Bricklin filed numerous lawsuits against Chery and the new company. A district court in Detroit awarded Bricklin $2 million in 2013. Litigation in several other lawsuits is still ongoing.
Bricklin was back in the news last year after unveiling a new venture to sell a three-wheeled electric vehicle he is calling the Bricklin 3EV.
(Bricklin talked about the new venture during a chance encounter on the floor of the Los Angeles Auto Show in 2016. I probably should have paid more attention instead of chalking it up to a pipe dream of a 77 year old entrepreneur missing the excitement of the game).
Bricklin’s model to launch the new EV is similar to his Chery vision — convince more than 250 dealers to invest as much as $1 million for the rights to sell the vehicle once it’s available (there are reports some dealers invested as much as $2 million already). Earlier plans stipulated dealers would also invest in offsite art studios selling art work for $10,000 or more.
A prototype is due this June with vehicles ready sometime in 2019. By the way, customers will test drive the vehicles via virtual reality pods located at the dealership.
Other Chinese Automakers
Other Chinese automakers have made noise about coming to the U.S. but their efforts haven’t made it to the actual planning stage. In addition to Chery, at least two other Chinese firms held press conferences more than 10 years ago at the Detroit Auto Show to announce U.S. initiatives. We’re still waiting.
The press conferences were awkward and stilted events stemming from translation issues and differences between Chinese and U.S. cultures.
Geely in 2006 became the first official Chinese automaker to exhibit at the Detroit Auto Show — albeit, it was in the outside hall of the arena. The company held a formal, yet awkward press conference to talk about its plans for bringing vehicles to the U.S. within a few years.
The next year, Changfeng unveiled two vehicles it claimed would be in the U.S. market by 2010. The press conference consisted of a speech read by company chairman Li Jianxin, which confused several journalists when they mistook the name of one of the vehicles to be “Lobster.” One of those pesky translation issues. Furthermore, the motto on its marketing materials that year? “Never makes you disappointed.”
Another Chinese automaker, Chamco, also exhibited in Detroit in 2007, but its display was offsite at a hotel a couple of blocks away.
In 2008, five Chinese automakers displayed vehicles, all with varying plans to enter the U.S. market by 2010. Again, it’s important to note, none of these plans have made it off the white board — 10 years later.
This year, it was GAC’s turn. A huge exhibit displaying six vehicles, including minvans, sedans and SUVs along with a press conference in which it unveiled an electric vehicle concept dubbed the En Verge and a sedan, the GA4, caught the attention of journalists. It’s not the first time GAC has exhibited — it also was in Detroit in 2013, and has been hinting at its U.S. plans for at least five years. The press conference and exhibit in Detroit last month were much better than previous efforts by other Chinese firms, although, still a tad awkward — mainly due to the dancers that went on too long prior to the unveiling of its vehicles.
GAC received a warm welcome in Detroit. The Auto Show chairman, dealer Ryan LaFontaine, gave remarks at the company’s press conference, while Michigan Governor Rick Snyder took pictures with GAC executives. NADA officials also talked about discussions last year with GAC which resulted in the automaker being set to exhibit at this year’s dealer convention.
GAC says it plans to start selling its GS8 midsize SUV in late 2019 in the U.S. Ironically, the GS8 falls under GAC’s Trumpchi brand (no relation to our current president). The company will rebrand the vehicle for the U.S. and other markets this year.
Is GAC’s plan just the latest in wishful thinking from a Chinese automaker? For dealers who likely will be asked to invest significant money to secure franchise rights, it’s an important question.
It is true, there are aspects to GAC’s operations that have it in a much better position than previous attempts from other automakers. GAC wants to be a global power player and needs to be in the U.S. for that to be a reality. In addition to the North American market, GAC has established sales operations in 13 other regions.
Despite only building cars for since 2010, the state-run GAC has come on strong, with more than 500,000 vehicles produced last year, propelling it to one of the top 10 automakers in China. The company also is known for its quality, having led the JD Power and Associates Initial Quality Study in China the last five years. The company also has relationships with several automakers — Fiat Chrysler, Honda, Toyota and Mitsubishi.
GAC appears to be serious about the U.S. It reportedly is already testing vehicles in U.S. states known for having harsh climates. Also, GAC recently opened a research center in Silicon Valley and plans to open one in Detroit in the near future. GAC’s engineering institute recently announced an agreement with Visteon Corporation to develop self-driving and electronic solutions for its vehicles. The strategic partnership is for the Chinese market, but the technology likely will be implemented into all of GAC’s vehicles.
GAC is a legitimate automaker with the chops and the cash to be able to move into foreign markets. Nevertheless, dealers should beware before writing that check. GAC has a steep hill to climb the next several months.
HISTORY. In addition to the failed initiatives listed above, history has not been kind to brands that have launched operations in the U.S. in recent years. Fiat, Smart, MINI, Alfa Romeo, for the most part, haven’t been able to build sustainable profitable runs. And Scion was killed by Toyota in recent years.
TIMING. A second challenge for GAC is timing. It’s planning to enter the market at a time when new car sales are contracting. It will need to take market share from someone — nearly impossible in today’s environment.
MARKET KNOWLEDGE. GAC reportedly has been conducting customer surveys and researching the market here. But, that’s a far cry from understanding how to market and retail vehicles. Incentives, lending, trade ins, titling and registration, federal, state and local regulations governing vehicle sales — these are all areas GAC will have to get up to speed on. Additionally, GAC will have to find the right marketing firms to create the right message and branding. It’s also going to need help navigating those pesky translation issues. All of this is doable, but will take the right vendors and partners for GAC be ready in the next 18 months.
RETAIL NETWORK. The biggest challenge for GAC will be building a retail network. It won’t have trouble finding dealers to sign on, but it’s going to have to develop franchise processes and practices which require technology. GAC needs to get key dealers in place within the next couple of months to start building around.
Recent speculation has GAC partnering with FCA to retail vehicles here. It is being considered. Executives mentioned FCA while at the auto show, and met with FCA executives at the company headquarters outside of Detroit the same week. GAC already partners with Jeep in China.
But a retail partnership in the U.S. will be difficult. GAC wants to enter the market with its mid-size SUV — a vehicle that will compete with Jeep’s offerings. GAC does have sedans and small vehicles that won’t compete with Chrysler now that it has abdicated those segments. But those vehicles aren’t going to cut it.
GAC could partner with one of the larger dealer groups that have operations in key markets. That probably makes more sense does a relationship with one of the automakers.
U.S. REGULATIONS. We still haven’t heard much about GAC’s vehicles being able to meet U.S. standards. But judging from the vehicles displayed at the auto show along with its strong showing in quality surveys in China, GAC may have less trouble on this front than other foreign automakers may have had in the past.
TRADE ISSUES. This one is going to get tricky. Sources out of DC tell us the U.S. has laid the groundwork for launching an aggressive trade war against China and is only waiting the go ahead from the White House. In fact, President Trump and many of the Democrats appear to be on the same page regarding trade practices in China. This one bears close watching because it will impact much more than GAC’s desires to be in the U.S.