With the U.S. auto industry riding a wave of momentum and many automakers achieving new levels of sales and profitability, it is understandable how foreign companies, looking in from the outside, would be salivating at the prospect of also making their mark in America, the land of opportunity. So perhaps it should have come as no surprise that Gui Shengyue, CEO of Geely Automobile, revealed to Bloomberg last month that the Chinese automaker is working with Volvo on product development with the intent to begin exporting cars to the States by 2016. While skepticism is sure to be prevalent amongst consumers who doubt the viability of a Chinese brand in the U.S., there is reason to believe that success is within the realm of possibility. Although Geely’s announcement may sound like an impulsive decision based solely on the remarkable rebound of America’s auto market, the fact of the matter is that the automaker has long held aspirations to establish a presence in the U.S. and, in the end, may be the one with the last laugh.
In 2006, Li Shufu, founder and chairman of Zhejiang Geely Holding Group, the parent company of Geely Automobile, set the table for the unprecedented entry of a Chinese automaker in the U.S. market when Geely participated in the North American International Auto Show in Detroit, Michigan. Due to an absence of brand recognition and insufficient consumer confidence, however, the carmaker’s plans were inevitably shelved, having to wait for the opportune moment to make its move. Since then, Zhejiang Geely has not stopped in its pursuit to complete its mission and, in 2010, successfully acquired Volvo Cars from Ford Motor Co. for $1.8 billion. In the first few years since purchasing Volvo, Chairman Li was apprehensive about any affiliation between the Chinese and Swedish brands over fears of harming European automaker’s reputation, but it appears at least some of those concerns have subsided as the company announced in February that it would set up a collaborative R&D center in Gothenburg, Sweden between both Volvo and Geely.
Last month, in an interview in Hong Kong, Geely CEO, Gui Shengye, proclaimed, “Our acquisition of Volvo enhanced our image and overseas consumers are seeing us as an international company.” While that may be the case in markets outside of the United States, Volvo has clearly lost the luster it once had in America and Geely’s association with the Swedish marque could just as easily hurt it in the eyes of consumers. The reality is that consideration of the Volvo name and its brand equity, with regards to the U.S. market, may be of little importance if the Chinese automaker is truly intent on making its move as despite Geely having yet to come over, its Swedish partner has been losing sales and market share for years. Thus, Volvo’s reputation being negatively affected by Geely is just as unlikely as Geely’s brand recognition being enhanced by Volvo, with the European carmaker’s share being a barely noticeable 0.5%, and the connection between the two brands should not be a major factor in the company’s upcoming decisions.
In China, as foreign companies flood the automotive market and domestic competition continues to escalate, the pressure is progressively rising on Chinese automakers to expand operations into overseas countries in order to maintain viability. According to the China Association of Automobile Manufacturers, as of July 2013, domestic brands saw their combined market share fall to its lowest level in five years and with the Chinese market becoming a major focus of auto manufacturers around the world, the trend appears unlikely to end. Therefore, the announcement of Geely’s plans may have more so to do with an ever-increasing need to enter foreign markets due to diminishing opportunities domestically than it is Volvo’s prestige now providing the Chinese brand the leverage it needs to make its U.S. arrival. With the development of emerging automotive markets around the world, however, Geely’s opposition may soon extend far beyond China’s borders, with automakers from India and Europe also claiming to have plans for the U.S., as well.
Two years prior to Geely’s purchase of Volvo, Indian automaker, Tata Motors, finalized an agreement with Ford to buy British marques, Land Rover and Jaguar, for $2.3 billion. Similar to Geely, Tata has focused on its home market while deliberately keeping its European brands separate from the Indian brand. In 2008, upon developing its $2,500 Nano minicar, the world’s most affordable car, rumors began to circulate that the automaker would look to export the model to Western countries, but the Nano has had some notable hurdles, including well-documented fire issues, and has yet to achieve annual sales above 71,000 despite having a target of 100,000 deliveries per year. Nevertheless, according to Ratan Tata, the billionaire owner of Tata Group, a redesigned Nano will arrive on U.S. shores within the next few years, saying, “The U.S. is a very enticing market. We are redesigning the Nano for both Europe and the U.S.”
Not to be outdone, Fiat Group, hailing from Italy, took controlling interest of American automaker, Chrysler Group LLC, in 2009 with the goal of becoming a global automaker on the scale of Toyota, General Motors, and Volkswagen. Thus, as part of the company’s expansion plans, the Fiat brand began sales of its two-door Fiat 500 in the States in 2011, with dealers looking to acquire a Fiat dealership with the promise of future Alfa Romeo models, upon the brand’s return to the U.S., being sold alongside Fiats. By the end of 2013, the expectation is for the all-new Alfa Romeo 4C sports coupe to launch in the U.S., followed by more models within the Italian brand’s product portfolio. However, as the European economy has floundered, Fiat Group’s struggles with sales and profitability have greatly affected its product development plans and little is known as to what the organization’s product strategy is for the two Italian brands in the American market. The expectation though is that the survival of the Alfa Romeo brand is incredibly dependent on a successful reintroduction of the marque in the States, and as Fiat-Chrysler CEO Sergio Marchionne stated this year, “This undertaking to try and bring Alfa back is a one-shot deal. We’re not going to do this twice.”
While many companies share similar visions of making successful entrances into the United States, the automakers seemingly closest to meeting those objectives have all acquired brands with established presences in the American market. Fortunately for Fiat Group, consumer perception for Italian cars is elevated by the existence of exotic carmakers, such as Ferrari and Maserati, who are both owned by Fiat. Also, Fiat Group can take advantage of Chrysler Group LLC’s significant distribution network, which is far greater in size than that of Volvo or Land Rover-Jaguar. Nonetheless, what Geely and Tata both have in abundance is access to capital, which will need to be heavily utilized if the two brands are to make the jump to the States. As 2016 is only three years away, it will soon be known whether a Chinese or Indian automaker will turn heads and begin competing in the U.S. auto industry, but just as the Korean auto manufacturers were able to turn doubters into believers within only a few decades, it may be unwise to discount Geely and Tata just yet.