Why American Auto Companies Shouldn't Fear The Chinese

Why American Auto Companies Shouldn't Fear The Chinese

News broke this morning that Chinese automaker Geely is coming to America. Eventually. With one single vehicle, a small crossover SUV based on a shared platform with Volvo. Production is slated to begin in late 2016 and the model could hit American shores in mid 2017.

American automakers are very aware of this and while it may come as a surprise to the public they would have seen this coming. The Volvo deal has been no secret since it was signed and it makes sense for a cheap Chinese car to enter the lucrative US market.

But American automakers should not be worried. They will have a host of competitive products in an industry with very little competitive advantage. They know this game and have been playing it for nearly 100 years and 3+ generations of executives.

And unlike throwaway items - napkins, party favours, fast fashion and consumer electronics cars must be built to last. The Chinese have a poor history with this, especially in industries that are well established and have sophisticated players with elaborate marketing machines and production facilities. As buyers of Chinese products know quality is not exactly job 1 for team China and this brand will be difficult to overcome.

Unlike the Japanese products that hit our shores in the 70s, Chinese products will face an extremely tough battle in a market that is well prepared for their arrival. Matters will be further complicated for the Chinese because the strategy shift to international markets does not align will with creating competitive advantage. Shifting into different geographic markets tends to reduce competitive advantage in cases where the product has no intellectual property protection. Vehicles are a textbook example of this sort of product, as opposed to the iPhone which enjoys both intellectual property and brand advantages already.

The Chinese will also need to figure out a dealer network, in an age where Americans will increasingly buy their cars online from the likes of Tesla.

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