Over the past few weeks we’ve been profiling the entry of foreign cars produced in Asian countries into the American market and their eventual acceptance among consumers in the U.S. The American vehicle market turned towards fuel efficient Japanese cars made by Toyota and Nissan in the years after the 1973 fuel crisis. The Hyundai Motor Group, which includes Kia Motors, saw vastly improved U.S. sales for South Korean cars through the first decade of the 21st century.
In 2015, another Asian country will join the ranks of foreign nations which have earned a slice of the American car market pie. Most U.S. consumers might not notice because of the recognizable brand name. However, the Volvo S60 Inscription, set to be released in America late this summer, marks the first major release of a Chinese-made car in this country.
The road towards manufacturing of Chinese vehicles for the American consumer market began to be paved in August 2010, when Geely Automotive Holdings (HKG:175), headquartered in China’s Hangzhou province, acquired Volvo Cars from the Ford Motor Company (NYSE:F) for $1.5 billion. It was the largest overseas acquisition by any Chinese-based automotive manufacturer. The Volvo S60 Inscription will be produced by Volvo’s factory in the Sichuan capital of Chengdu, where the manufacture of Volvo vehicles began in August 2013.
The Volvo S60 Inscription will be marketed at a retail price of just under $40,000 USD, so Geely is not looking to corner the low-end vehicle market the way that other foreign carmakers did in earlier decades. The vehicle is a long wheelbase variant of Volvo’s S60 midsize luxury sedan, providing rear seat passengers with an additional 2.9 inches of legroom. A front-wheel drive model of the S60 Inscription has a turbocharged T5 2.0 liter engine outputting 240 horsepower while a four-wheel drive variation offers a 2.5 liter turbocharged engine and 250 horsepower. It’s expected that this vehicle’s main competitors will be the Audi A4 and the BMW 3 Series.
This new luxury sedan model from Volvo is not the first Chinese-made car to be released to American consumers. Shortly after China became the world’s largest market for automotive sales in the first half of 2009, LA-based Coda Automotive partnered with a Chinese manufacturer to produce a four-door electric sedan which retailed in America for about $32,000. Coda’s fortunes went south quickly thereafter, however, as it filed for Chapter 11 bankruptcy in May 2013 after production delays and insufficient capital led to debts of $100 million, twice the amount of the assets reported by Coda in that filing.
Volvo’s S60 Inscription also isn’t the first all-Chinese vehicle sold in North America through a major automotive brand. Japanese automaker Honda Motor Company (NYSE:HMC) began manufacturing its subcompact Fit model in China for sale in Canada, shifting the Fit’s production from Honda’s home country of Japan, a move made in part to improve sales of the Fit without being hampered by the strength of the Japanese yen.
The fact that these cars are manufactured in China but sold under brand names familiar to American consumers should help keep vehicle sales strong. Toyota, Nissan, Hyundai and Kia all needed anywhere from 15 to 20 years in order to begin seeing high levels of consistent sales in this country. Volvo, Honda and others established brands that may be looking at manufacturing their vehicles in China will likely have a much easier time as they’ve already broken into the market. Volvo in particular seems to be stepping very lightly around the topic of the S60 Inscription’s manufacturing location. A Volvo Cars of North America press release published just prior to the 2015 North American International Auto Show in Detroit noted that the S60 Inscription is “tailored to meet the discerning requirements of U.S. consumers.” Not only does the press release make no mention of the Chengdu manufacturing operations but it reinforces Volvo’s Swedish heritage, noting the Scandinavian nature of interior accents like the walnut wood used for the linear trim as well as the silk metal detailing.
Chinese automobile manufacturing is also sought after by carmakers that want to build sales in China, which has expanded its lead as the world’s largest market for vehicles since stealing that crown from America in 2009. Through the first half of 2014, sales of new cars in China reached a total of about 11.81 million, a growth of about 9 percent over the previous year’s first half new car sales totals and 3.7 million more than the number of new cars sold in America during the same period of time. Chinese exports to any countries, America and the rest of the world, are a small portion of China’s annual vehicle production totals.
The decision to export vehicles to the United States does come as a sizable leap of faith for Chinese companies. Despite the size of the Chinese car market, major national automakers like Great Wall Motor and Geely have exported products to the Middle East, Africa and some Eastern European markets. However, as far as vehicles are concerned, what gets made in China typically stays within China. In 2008, there were 580,000 vehicles produced in China, but only about 3 percent of those units were exported to other countries. Developed markets in North America and Western Europe have barely been touched by Chinese automakers.
Interestingly, Volvo has also decided that 2015 would be the year in which it establishes a manufacturing facility in the United States. In late March, Volvo announced that it would invest $500 million into the construction of the company’s first American production facility, situated in South Carolina. Eventually it’s hoped that the facility, scheduled to open in 2018, will employ up to 4,000 workers and produce up to 100,000 vehicles per year once the plant is fully operational. That total would still pale in comparison to the American vehicle production levels of major corporations like Nissan, GM or Honda, but Volvo’s American sales dropped 8 percent to 56,000 vehicles and it’s hoped that a larger U.S. manufacturing presence will encourage consumer acceptance of the Volvo brand.
The first Chinese shipments of the S60 Inscription are not expected to be high in volume. Volvo expects to ship 1,500 units to the U.S. in 2015 and 5,000 in following years, according to remarks made by Volvo CEO Håkan Samuelsson this April. 2015 sales levels of the Volvo S60 base model for the luxury sedan have only reached 8,884 units through mid-June, a figure that was down 13 percent from sales figures for the same time period in 2014. This low shipment volume is also likely to temper the skepticism which is expected from American consumers who will face the prospects of the first significant Chinese vehicle on the American market.