Cliff Banks - The Banks Report

Guangzhou Auto to the U.S. — Just Another Bad Bet

A story in Reuters last week reported that Guangzhou Auto is planning to launch its GS4 SUV in the U.S. in 2017 and is looking for dealers to partner with.

It’s the latest Chinese automaker to announce plans to come to the U.S. — BYD (Warren Buffett owns a reported 10% — but don’t get starry eyed with his ownership) and Great Wall Auto both targeted 2015 as the year they would be in the U.S. Don’t hold your breath. Neither are any closer than what they were a few years ago.

The only Chinese venture into the U.S. that has any hope of success over the next few years are vehicles that will come from Chinese automaker Geely’s ownership of Volvo. This summer, the Volvo Inscription S60 sedan, which is being built in Chengdu, China will be sold through its U.S. Volvo dealership network — under the Volvo brand. (We think it’s already shooting itself in the foot with the Inscription moniker).

Meanwhile, Geely still is making noise about selling Geely-branded vehicles in the U.S. in the near future. It’s going to be a tough sell here. Probably the strategy would for Volvo dealers to buy into a new Geely-branded franchise (much like Chrysler dealers did with both Fiat and Alfa Romeo).

Historically — at least over the last 15 years — new brands have pretty much failed in the U.S. Hyundai and Kia took years to find success. Other brands haven’t fared so well and have cost dealers a lot of money.

Even Fiat hasn’t been a success story. Most dealers selling the brand aren’t profitable with their stores. There have been bright spots — Lisa Copeland and Nyles Maxwell in Austin, TX and Josh Towbin in Las Vegas — but for the most part, it’s a brand that sucks money.

Mini has been moderately successful but has had its challenges. Scion — well, Toyota seems to be struggling with its future. And investing in the Smart brand turned out not to be so Smart for most dealers.

Then there are the brands that dealers invested in that never made it to the U.S. Remember the Crosslander from 12 years ago? John Perez convinced dealers he was going to import the Romanian built SUV. When that venture failed, he partnered with Indian automaker Mahindra to convince dealers to invest hundreds of thousands of dollars. Both ventures failed with barely a whimper with dealers losing their investments.

Malcom Bricklin’s Chery venture never made it out of the plant in China, and again, investing dealers were left holding the bag.

The point is, recent history shows us not only is the barrier to entry in the U.S. market very high, so is the barrier to success. More often than not, dealers end up gambling away their money investing in ventures that have no chance of making it in the U.S. So when the Guangzhou folks come knocking, your best bet is to walk away.




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