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Economic Forecasts

China Edges into U.S. Auto Market

For now, China will focus on investment to get a share of American car profits. But you will have the chance to buy a Chinese car, soon.

China’s automakers are mulling a two-pronged strategy for U.S. auto sales.

In a few years, Chinese automaker Geely will start selling its small sedans at Volvo dealerships that it acquired when it bought Volvo from Ford.

The move will be more of a gambit to gauge reception in the American market rather than a firm, long-range commitment to ramp up sales incrementally. By 2020 or so, Geely figures to be selling around 20,000 cars a year, a pittance considering annual U.S. new vehicle sales likely will be 17 million or more by the end of the decade.

Geely’s cautious entry into the U.S. market is a recognition of the fierce competition. “No matter the low price of vehicles, [new carmakers] can expect it will take years to win consumer acceptance,” says Rebecca Lindland, a director with IHS Automotive, a consultancy. She points out that Hyundai/Kia’s market share, for example, broke above 5% just a few years ago, more than 20 years after its first cars were sold in the States.

Meanwhile, Chinese car companies will invest in U.S. automakers as a way to share in American auto profits. SAIC, for example, a large Chinese automaker, is likely to buy a lot of General Motors stock when GM launches an initial public offering soon. The firm already partners with GM to jointly produce Buicks in China for sale throughout Asia. Geely and BYD, another Chinese automaker, are also considering U.S. stock shares.

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The investment strategy is similar to that of Chinese auto parts firms Pacific Century Motors and Beijing West Industries, which are buying U.S. auto parts companies.

There’s little incentive for China to spend hundreds of millions of dollars to develop and sell cars in the U.S. when China is now the world’s largest new-vehicle sales market—with sales there likely to double by the next decade to 25 million or so vehicles.

Moreover, “exporting cars to the U.S., even from a low-wage country like China, is becoming less compelling because ocean freight transportation costs now largely offset labor savings,” says David Cole, chairman of the Center for Automotive Research, a consulting firm.