The Dream of Exporting China-Made Cars to the United States


Geely: coming soon to a US dealership near you?

The ink wasn’t even dry on articles hailing the potential of China’s automobile market when China’s car makers began to dream of the day when they could sell their China made cars to the United States. While this dream has proven to be elusive, despite the ambitions and efforts of Chinese car makers to make it happen, it may at last become a reality in 2015.

In an interview earlier this month, an executive from Volvo, which is owned by Zhejiang Geely Holding Group (“Geely”), one of China’s leading local car makers, said that the company plans to begin exporting Chinese-made cars to the United States as early as next year.

Chery was the first of the Chinese car companies to dream of penetrating the U.S. market. In 2005, Chery made the startling announcement that it had teamed up with Malcolm Bricklin’s Visionary Vehicles and would begin importing and selling 250,000 mainland-made sport utilities, sedans, and sports coupes in the U.S. in 2007. “Audacious, gutsy, and maybe a little nutty” was how this announcement was described by industry observers. After all, Chery had only sold 80,000 cars in China the year before, the company had no brand value with U.S. consumers, and everyone doubted Chery’s ability to meet the emissions, safety and quality requirements of sophisticated American consumers.

Moreover, Chery’s partner was a bit of a maverick and very controversial to say the least. Bricklin gained notoriety in the 1960s when he and a partner formed Subaru of America, Inc. to sell Japanese made cars to U. S. consumers. However, Bricklin’s subsequent efforts in the auto industry — a company manufacturing the Bricklin SV-1 car, a company importing the Yugo car from Yugoslavia, and a company that made electric bicycles — all ended in bankruptcy. To many, importing cars made by Chery promised to be an instant replay of the Yugo fiasco.

As everyone knows, Chery’s attempts to export to the U.S. ended in failure. In fact, the company has hit the skids in its home market in China. Chery lost its leadership position among the country’s local car companies when its vehicle sales declined by over 12 percent in 2012. Despite 10 percent overall industry growth this year, Chery is still struggling. The company’s sales have declined by 9 percent so far in 2014.

Geely — pre-Volvo — was the next Chinese car company to dream the American dream. Geely’s first time appearance at the Detroit Auto Show in 2006 created quite a stir due to its previously announced plans to enter the U.S. market. At the annual show held in January, Geely stole the limelight when it showcased its “China Dragon,” along with other models it planned to export to the United States beginning in 2008. Geely said its goal was to land a basic model in dealer showrooms for $7,500. Like Chery, Geely’s initial effort to export its cars to the U.S. ended in failure.

A great deal has changed since then, however. In 2010, Geely bought Volvo from the Ford Motor Company for $1.8 billion. While the acquisition of Volvo gave Geely a well-known international brand, the company got little else. According to Bloomberg, Volvo’s global sales of 335,000 cars were off 11 percent at the time of the sale, and 27 percent off their peak. In the two years prior to the acquisition, the Swedish car maker had lost $2.6 billion, leading many to wonder how Geely could possibly make it work.

By all accounts, Volvo is doing well under Geely’s stewardship. In 2012, Volvo said that it would spend $11 billion from 2011 to 2015 as part of a global expansion program that would include China. The company announced at the same time that it would form a joint venture with Geely to produce Volvo cars in China. (Since Volvo is owned by a consortium including Geely’s parent company, the Sweden-based automaker is considered a foreign car maker, despite being wholly owned by Chinese interests, and needs a local partner before manufacturing in China.) Since then, the joint venture has established two assembly plants — one in the southwestern city of Chengdu that produces the S60L sedan, and one in Daqing in the northeastern part of the country that produces the XC90 model.

Volvo will use its two assembly plants in China to export to the United States, Russia and other markets such as Southeast Asia. Volvo plans to begin exporting the S60L, a long-wheel-base version of its S60 model, to the United States, and the XC90 SUV to Russia, as early as the end of next year.

Meanwhile, Volvo’s sales in China are booming as the company takes advantage of the continued fast growth of the country’s luxury car segment. Volvo’s China sales are likely to reach 90,000 cars in 2014, an increase of 47 percent from last year. China is now Volvo’s biggest market globally, ahead of the United States, and there is more growth to come. Volvo’s two assembly plants in China have a total annual capacity of 250,000 units.

Li Shufu, the founding Chairman of Geely, has been very patient with his Volvo acquisition, and his patience is now paying off in China, and will begin paying off in the United States next year. By using the Volvo brand, which is well known to American consumers, and a car model that already meets the strict requirements of the U.S. marketplace, Chairman Li has found a clever way to realize every Chinese car maker’s American dream.

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