In the last couple days we had the news in the UK that the distributor of a Chinese car brand had ceased trading and of a decent football result in Mexico. As I know little about football, but something about the car industry, I’ll stick to commenting on the first story which I’m sure will generate fewer headlines and hours of TV coverage, but I would argue is the more important story.
I’ve not driven one, but the Skywell is apparently a decent, if unexciting product. It has just had some upgrades to make their cars better-suited to UK roads, and the car company itself is a joint venture in China between the Skyworth consumer products group and an established commercial vehicle manufacturer. Whether that is enough to make them a long-term player in China is not a question that I can answer, but they at least have the potential of leaning on larger core shareholders if needed. The UK importer was a start-up but owned by a wealthy Syrian family with existing and successful automotive distribution businesses. My interest however is not the specifics of Skywell or Hmicho, but the broader implications for all new entrant brands, dealers and customers.
Registrations since launch in January 2025 were low, with probably a few tens that actually ended up in the hands of retail buyers, and a similar number remaining in the hands of the 16 dealers who had been recruited. There appears to be some potential for the rights to be passed on to a new distributor which would provide continuity of support, but owners are at least left with some uncertainty. Dealers only had to make very modest facility investments, but they similarly are left wondering whether they should reallocate the space that was being used for Skywell to another brand. If there were any dedicated sales staff, should they be redeployed or made redundant? I am sure that Skywell never made it onto any company fleets, but some will certainly be financed. What should those companies do about adjusting their residual value forecasts? The importer was also distributing the DFSK brand for which there are no stated hopes of another business taking on the role, so any owners of those products are in an even worse position.
This is a small-scale failure which hasn’t reached the pages of the consumer press, but you can easily imagine the headlines in some parts of the tabloid press – ‘Chinese car brand collapses leaving owners stranded!’ Similarly none of the major dealer groups had signed up with Skywell, so reputational damage there is limited, but as usual with car retail, if there is a problem, it is typically the dealer (or the distributor if the issue is at manufacturer level) who steps in. I know of one major distributor who shouldered the costs of getting customers out of their problems when the first generation of Fisker collapsed, only for history to repeat itself with the second incarnation more recently. (It goes without saying that the distributor opted out of being involved in Fisker #2.)
One of the reasons why the new brands have been relatively more successful than the Koreans and Japanese before them, has been the confidence that buyers have from the dealers who have signed up for the brands. Despite the talk a few years ago about the ‘death of the dealer’, they remain at the heart of the customer experience through both sales and aftersales. Customers assume that they are getting honest advice at the point of purchase and an implicit promise of continuing support throughout the ownership cycle. With that however, there is an implicit responsibility on the dealer to look after the customer if something happens. Generally that just means some goodwill payment or a favourable buyback, but in the event of a brand exiting the market, with multiple customers involved, the consequences are much greater.
Skywell was never on my radar scheme as a brand that I would rush to partner with as a dealer, or that we have ever had on the ICDP prospect list as a potential new member of our research programme, but between them and the brands that are already established, there are many others, not only from China, who are here, have publicly declared their intention, or will pop up over the coming months and years. Not all will survive, not necessarily due to market progress here, but also because of potential actions in their domestic market that impact their viability. Going back to the example of Fisker, regardless of anything else, could Fisker have survived anyway when Trump wound back all the BEV incentives in the USA, declaring ‘drill, baby, drill’? Government intervention in China is imminent- could there be unintended consequences for the export business of the various OEMs?
Skywell is therefore a cautionary tale and I can only re-emphasise the advice we have given before to ICDP members. Look at how much skin the OEM has in the game in your market – NSC, distributor or an arms-length trading relationship? Do they have a solid home base, because you can’t build a house on sand? Do they have a solid pipeline of product that will give good market coverage in the relevant segments? Are they working with credible local partners and recruiting executives who can accelerate the learning curve? In the case of Skywell, the answer to every one of these questions would have been negative, if an OEM you are looking at is scoring more positively, then they may well be a future partner for you.
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