Certain foreign countries are inextricably linked to the top automobile brands they produce and sell world-wide: Germany has BMW, Audi, and Mercedes; Japan has Toyota, Honda, and Nissan; and when you hear “sports car” it’s usually preceded by “Italian,” as Italy is known for it supercars such as Maserati, Ferrari, and Lamborghini. But what about Chinese cars (especially considering China’s position as the second largest global economy after the U.S.) – where have they been all these years?
If you’ve never heard of a Chinese car it isn’t because they aren’t made – in fact the auto industry in China has been the largest in the world for almost a decade and manufactured more than 24 million passenger cars in 2016. So if Chinese cars aren’t on your radar, it’s likely because a Chinese car sold directly by a Chinese company just is not happening in the U.S… yet.
Does China Plan to Sell Cars in the U.S.?
If history is anything to go by, Chinese automakers are trying to gain a foothold in the U.S. market: they’ve been trying for the past decade, writes Bloomberg, and while they’ve failed so far, automakers from China continue to persist.
The presence of representatives from Chinese company Guangzhou Automobile Group Ltd., or GAC, China’s sixth biggest carmaker at the NAIAS (North American International Auto Show in Detroit) this year signaled continuing intentions by Chinese automakers to sell to Americans. Chinese carmakers first came to the Detroit auto show eight years ago, and this year, GAC transported and displayed “a sporty concept sedan called the E-Jet, an extended range hybrid that is expected to go into production later this year,” writes Forbes.
But the U.S. auto market is competitive and functions quite differently that the auto market in China, notes Forbes. Chinese automakers will not only have to overhaul their sales strategy, they’ll need to prove to U.S. consumers that their vehicles are reliable and repairable. Quality problems as well as the need to adjust vehicles meant for American shores to meet our stricter safety and emissions regulations are still the biggest hurdles facing Chinese carmakers.
In order to ensure vehicles comply with U.S. government safety regulations, Chinese companies would need to work directly with U.S. regulators, reports Forbes, something GAC reports they are just beginning to do. And while J.D. Power Asia Pacific reports that the gap between vehicles produced by Chinese automakers and those produced by other brands is closing, the quality gap still remains. Specifically, owners report more problems with Chinese-made vehicles in the first two to six of ownership than they do with cars produced elsewhere and, “None of the Chinese brands exceeded the industry average there in initial quality.”
How Might Chinese Cars First Come to Market in the U.S.?
Since Chinese-made cars don’t yet compare to the quality of vehicles produced elsewhere, Chinese car companies have begun to partner with outside automakers, reports Forbes. GAC, for example, has worked with Toyota (of Japan) and Fiat (of Italy) and they announced at the NAIAS that they will expand their work with both Fiat and Chrysler Group International.
At the Detroit auto show, GAC also announced their plans to be the first Chinese automaker to sell on U.S. soil. GAC has plans to open an outpost in Silicon Valley during the first half of 2017, reports Bloomberg, in preparation for retail sales in the U.S.
As for how GAC plans to entice U.S. consumers? Price. In the past, GAC officials have said they planned to charge up to 30 percent less for their cars than their competition for vehicles in similar categories.
What Will Insurance Look Like for Chinese-Made Vehicles?
U.S.-issued auto insurance details for Chinese-made vehicles is, of course, hypothetical at this point since Chinese carmakers do not yet sell cars in the U.S. Still, we wanted to know what we might expect, so we asked The Zebra’s own licensed insurance agent and adviser Neil Richardson to share his thoughts.
“My initial thought is that insurance rates will be fairly high for Chinese import vehicles,” Neil said. “Much like with other foreign vehicles, parts for Chinese imports will have to be shipped from overseas, inflating the cost for vehicle repairs.”
And, Chinese imports with lots of fancy (read: expensive) safety features and the like will cost a lot to repair if damaged, upping insurance rates. Further, Neil explained, there will likely be added costs associated with training mechanics and repair facility employees on Chinese vehicles.
“If repairs for Chinese imports are cost-prohibitive, the rate to insure those vehicles is likely to be heavily inflated.”
And that 30 percent lower retail price GAC reportedly plans to use to appeal to American buyers might actually increase costs for U.S. consumers when it comes to insurance.
“If GAC sells a car for 30 percent less than a comparable domestic car would sell for, and if we assume repair costs will inflate insurance rates on vehicles imported from China, there will be even more disparity between the car’s value and the cost to insure it.”
Will U.S. insurance companies want to insure cars made in China?
“On the one hand,” explains Neil, “if Chinese vehicles are valued at 30 percent less than a comparable domestic vehicle but the cost to insure them is the same, insurance companies would likely want to insure as many of those imports as possible since they’ll be collecting the same premium with a lower potential payout if the vehicle is totaled.”
“However, insurance companies guarantee repairs after a claim, so if the lack of experience that repair shops have with Chinese vehicles creates a quality issue, then insurance companies may not want to take on the risk of having to fix a vehicle multiple times for the same claim. Ultimately the decision on whether to offer coverage for Chinese import vehicles will come down to profitability for insurance companies, and the answer to that remains to be seen.”
Would you buy a Chinese-made vehicle?