Steve Young Blog: Chinese Challenges

By automotive-mag.com 6 Min Read

The growth of Chinese car brands in the European market has been in the headlines in the last week or so, so it seems an appropriate point to comment on the news stories but also launch a new initiative from ICDP, where we have extended the ‘fireside chats’ that we have had in some of our recent members’ meeting to record interviews that we can then share more widely on a range of topics.  In one of the first of those, I spoke a couple months ago to Earl Hesterberg, the recently-retired CEO of Group 1 Automotive, and prior to that Vice-President of Sales and Marketing at Ford of Europe.  He clearly understands the industry well from both manufacturer and dealer perspectives, as well as the European and US markets.

Firstly, looking at the news stories, the European Commission issued a Regulation on March 5th stating that they have found evidence of subsidies by the Chinese Government to domestic car manufacturers that have resulted in them having an advantage over other manufacturers in the European market.  On the basis of those interim results, they ordered that imports of Chinese-built cars into the EU should be recorded from that date, with the potential to retrospectively apply an additional tariff over and above the 10% currently applied.  An interim decision must be published by early-July and a final decision by November, so this affects cars that are already built for the European market and are in transit as well as the current build plans.  It’s therefore big news for anyone sourcing cars out of China, which means not only the brands that we immediately think of as Chinese like BYD, Great Wall and MG, but also product from BMW, Dacia, Lotus, Polestar, Tesla and Volvo.  Depending on their response, it’s going to hit volumes, profits and pricing in some way for the rest of the year.

Meanwhile, the European car industry is split, with few voices being raised strongly in favour of tariffs as the solution, but at least a more muted response from brands like Renault and Stellantis whose Chinese business is weak, and concern on the part of the German brands who still have strong sales and a big part of their profits coming out of China, and are worried about retaliatory action.  Even against that backdrop it was still a surprise to see Ola Kallenius, the Mercedes-Benz CEO come out strongly against tariffs in an interview with the Financial Times this week.  He not only argued against new tariffs but suggested that the existing tariffs should be lowered, believing that competition makes you stronger.  Until now, the Chinese brands in Europe have mainly been at the lower end of the market, not competing directly with the likes of Mercedes, but that is changing with the launch of premium sub-brands by the likes of BYD (Yangwang), Chery (Jaecoo), Geely (Zeekr), Great Wall (Wey) and SAIC (IM).  I think we can therefore guarantee that the competition Ola is looking for is coming.

I’ve extracted around five minutes from the Earl Hesterberg video for this blog, and if you’ve got time, it’s worth a watch.  We talked about the inevitability of the growth of the Chinese brands in Europe and the US, the value or otherwise of tariffs to protect the domestic industry, and whether it makes sense for dealers to jump in to try and get a slice of the action at this stage.  It’s all interesting stuff, from a great leader of our industry.

My own view, as I stated in a previous blog, is that the advance of the Chinese brands is inevitable, like the Japanese and Koreans before them.  Then as now, there was concern about the impact it would have on the current players, and it probably contributed to the demise of some once-familiar names.  However, those brands became part of the European and US scene with local manufacturing, extensive employment of local staff at all levels up to top management, and many happy customers.  Change is always challenging, but statis – no change – is worse.

Steve Young is managing director of ICDP

Share This Article
Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *