LOS ANGELES — HAAH Automotive Holdings’ decision to give up trying to import Chinese cars to U.S. showrooms is the latest in a history of would-be distributors that have underestimated the difficulty of such an endeavor.
But HAAH’s failure also is likely to dampen future attempts by others — at least in the current political climate.
HAAH CEO Duke Hale told Automotive News that his seven-year labor proved impossible, given rocky U.S.-China relations. In addition to growing political and economic skirmishes between the two nations, Chinese vehicles now bear a 27.5 percent tariff to enter the U.S.
“All of our big investors, all of them, have moved away from the deal because of U.S.-China relations,” Hale said. “They do not see it as the right place to invest.”
Hale told dealers early last week that HAAH would be liquidated through bankruptcy after failing to raise about $200 million needed to move ahead with his plan to import vehicles from China’s Chery Automobile Co.
But as of press time, Automotive News was unable to confirm that a bankruptcy petition had been filed, and Hale declined to comment further about it. HAAH’s prospective U.S. dealers stand to lose nonrefundable deposits for franchises that ranged from $100,000 to more than $1 million, based on the number of sales points and their location.
Hale said he is moving on to a new venture called Cardinal One Motors that intends to make a bid to acquire the ailing Korean automaker Ssang-Yong Motor Co., which is in court receivership awaiting a rescue plan.
But Korean imports are unlikely to be a satisfying substitute for the decades-long attraction that China has been for a series of would-be distributors. China has dozens of automakers that could potentially sell in the U.S. while nearly all of the Korean ones have already set up shop.
Michael Dunne, CEO of the ZoZo Go consultancy that specializes in Asian automotive trade, characterized the failed HAAH deal as the end of the line for creative schemes to get Chinese-brand cars into the hands of U.S. consumers. Those attempts date back to at least 2005, sometimes spurred by the automakers and sometimes by would-be distributors.
“The days of light tariffs, loopholes and workarounds are gone,” Dunne wrote in his newsletter last week. “To win U.S. consumers, Chinese automakers will have to do what the Japanese, Koreans and Germans (and most recently Volvo) have done: build cars and trucks in America.”
Volvo’s parent company is Chinese automaker Zhejiang Geely Holding. Geely exports one Volvo model from China to the U.S. and one Polestar model. But more importantly, Volvo is investing $700 million at its Ridge-ville, S.C., plant to build the electric vehicles that will dominate its future lineup. General Motors also imports one Buick model from China.
HAAH’s business plan shifted as it tried to bring in Chinese vehicles. At one point, HAAH worked to import vehicles from Zotye Automobile Co. It later proposed assembling crossovers in the U.S. from its more recent Chinese partner, Chery Automobile Co. HAAH created two new U.S. brands, Vantas and T-GO, to market the Chery crossovers.
For a while last year, Hale and other HAAH executives touted a “Made in America” plan as a way to reduce the impact of the 27.5 percent tariff on Chinese auto imports while also creating a consumer-friendly message of local hires. But a U.S. factory was never announced and HAAH returned to the import plan this year.
One dealer who had been enthusiastic about the “Made in America” label was Larry Battison, dealer principal at Battison Honda in Oklahoma City. He placed deposits for two sales points for a total of $300,000.
During the course of 2020, HAAH had said it was doing a nationwide search for an existing factory to assemble the Chery vehicles using semi-knockdown kits, which are basically containers with all the parts needed to build the vehicles. HAAH promised that local content would increase over time as it established a U.S. supply chain.
HAAH said it narrowed down its site search to three possibilities, but it never announced a factory choice.
“I’m just deeply disappointed,” Battison said last week after HAAH pulled the plug on the deal. “The whole time we were strung along about finding a plant to build cars or assemble kits in the United States and that they were looking for a parts distribution warehouse. But it was all talk and very little action.”
Battison said he understood the risk involved and that he was more upset about the optimistic message by HAAH right up until the venture fell apart.
“I don’t think it was fraud, but I think it was making some assumptions that were overly optimistic and leading the dealer body to think they were further along than they really were,” Battison said.
Hale said Battison and other dealers were never misled. Hale pointed to prospective Vantas and T-GO dealers who were more understanding of the challenges HAAH faced, such as George DeMontrond, president of DeMontrond Auto Group in the Houston area.
DeMontrond said last week that he was disappointed about the failure to bring the new brands to the U.S. market and about losing his group’s deposit on five sales points. But he doesn’t blame Hale and HAAH.
“My feeling about Duke and HAAH is still very positive,” DeMontrond said. “I think they did everything they possibly could to make the deal happen.”
DeMontrond said he would keep an open mind on Hale’s latest venture with SsangYong. Should Hale come looking to recruit U.S. dealers for the Korean brand, DeMontrond said he will take a look at the proposal.
The potential SsangYong deal could bring the Korean automaker’s vehicles to the U.S. and Canadian markets more easily than the Chinese brands, Hale said, because the U.S. and South Korea have a free trade agreement. That means no tariffs and little tension.
“You don’t have the big tariff problem,” Hale said. “You have great relations between Korea and the U.S. It’s a different ballgame. And Korean quality is seen by the American consumer as very good.”
Hale said he is advising an investment group that plans to make a bid on SsangYong by the end of this month, the most recent deadline set by the bankruptcy court.
Hale said the SsangYong bid is likely to require raising $250 million to $350 million, in addition to possible help from Korean financial institutions, including the Korean Development Bank. About 4,500 jobs are at stake in Korea, Hale said.
“We’re positioned in Korea where, maybe if we raise money, we get some more money that would flow into the company,” he said, without identifying where the additional money would come from.
HAAH’s interest in SsangYong started a year ago, Hale said, but his new Cardinal One group has taken over the prospective business deal. Hale said HAAH would file bankruptcy but he declined to comment further on the advice of counsel. HAAH’s U.S. dealers are not part of the potential Korean venture, he said.
“Cardinal One Motors has nothing to do with HAAH,” Hale said last week. “It is a distinctly separate entity and it’s a new entity. And that entity will be in the process of submitting a letter of intent for the acquisition of SsangYong Motors.”