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Howes: Trade war slows GAC Motor's play for U.S. market

Daniel Howes
The Detroit News

The Chinese are coming, still.

A year after GAC Motor said it would use its seven-seat GS8 SUV to penetrate the rich U.S. market, the Chinese automaker is using the Detroit auto show to bow to economic reality: GAC's plans will be delayed until at least the first half of 2020 because of the costly trade war between China and the United States.

President Donald Trump's proposed 25 percent tariff on foreign-built vehicles "will hurt our competitiveness in the U.S. market as a new player," GAC President Yu Jun said in an interview Monday at the North American International Auto Show. "We cannot say this has no impact at all."

But the unit of Guangzhou Automobile Group Motor Co. Ltd., based in the southern city of Guangzhou, is nonetheless moving forward with its plans. On Tuesday, GAC is set to open a research and development center in Farmington Hills, a third U.S. facility joining an R&D center in Silicon Valley and a design center in Los Angeles.

Yu Jun, president of GAC Motor, says the automaker's entry into the U.S. market has been delayed by the deepening trade war between the United States and China.

The Metro Detroit R&D center initially will employ 30, some 20 of whom are expected to be local hires, said Wang Qiujing, president of GAC research and development. The Farmington Hills group is expected to focus on safety, powertrain, emissions and regulation — critical areas for anyone hoping to compete in the highly regulated U.S. market.

GAC's move into the United States signals an unmistakable trend in the global auto industry: after a generation of using China's restrictive joint-venture rules to learn the global auto industry's best practices from foreign automakers, Chinese players are targeting key global markets to introduce their brands and grow their top lines.

GAC executives repeatedly used their Monday presser and subsequent interviews to repeat their vision to become a global player with world-class brands. It's got a start. For six years running, GAC is China's top domestic brand for initial quality, a byproduct of its long association with both Honda Motor Co. and Toyota Motor Corp. and its vaunted production system.

And GAC has good reason to stick with its going-to-America strategy. For the first time in a long time, the hot Chinese market cooled last year. It dropped 4 percent, underscoring why official Chinese policymakers are encouraging indigenous automakers and other key sectors to look abroad for the growth and customer base that build brand credibility.

They need the business. GAC appears to have concluded it also needs the experience of selling product to Americans, to Russians, to countries in the Middle East — all prospective markets GAC is targeting in a continuing roll out of its strategy to go global. The challenge will be in the execution.

Ten months ago, GAC brass attended the annual conference of the National Automobile Dealers Association in Las Vegas. Their pitch to prospective dealer groups netted interest from 130 dealers groups representing 30 U.S. regions, Yu said. But that was before the U.S.-China trade dispute erupted, imperiling China's economic growth rate, roiling global equity markets and inflaming bilateral rhetoric.

Breaking into the finicky U.S. market won't be easy. Italy's Fiat and Alfa Romeo brands are finding the process long, costly and without guarantees of success. Being Chinese adds a measure of complication given China's status as an economic rival to the United States and well-documented policies that benefit China's automakers at the expense of their American and German partners, to name two.

GAC said this week it has established its national sales company here, a prerequisite to selling the GS8 and at least one more model to would-be American consumers. Also under consideration are a second, smaller SUV and an electric vehicle that could resemble the "Entranze," the multi-purpose utility crossover introduced at the Detroit auto show.

The business is changing, folks. Chinese automakers less than a decade ago dismissed as last-generation players who could not compete for "western" customers are making serious plays for them; Chinese players now own Volvo Cars Ltd. of Sweden and control nearly 10 percent of Daimler AG, the parent of Mercedes-Benz.

Detroit's General Motors Co. exited Europe after 90 years, and CEO Mary Barra last week hinted at possibly exiting South America, too, should efforts fail to revive the business there. Four GM plants in the United States will be idled later this year, the first step toward likely closure.

Despite evidence of a diminished auto show — "the scale and the size of the Detroit auto show is smaller," Yu said — the likes of GAC are here this week because entering the rich U.S. market is a critical step in its evolving global strategy.

And that proves one thing that should be evident around here by now: nothing is constant except change, the new reality for the Motor City that cannot be wished away.

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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.