Saturday, September 26, 2009

If you build it, will they come?

A group of Chinese investors is planning to build a hybrid car plant in Alabama. HK Motors ("Hybrid Kinetic", not "Hong Kong") would begin operations in 2013 and create 5000 jobs.

The venture is headed by Yang Rong, former head of China Brilliance, an auto company headquartered in Shenyang, Liaoning Province. Brilliance continues to operate in Shenyang, primarily through a JV with BMW, but it also produces some of its own-branded vehicles. Yang apparently had to leave Brilliance a few years ago after a falling out with the local government, which then took ownership of Brilliance and made it into an SOE. (More on Yang's story here at Automotive News, sub reqd.)

But all of that is beside the point. What I don't understand is how any venture can expect to sell vehicles when they have no brand. And in an industry suffering from significant over-capacity, what will differentiate HK's cars from all of the other established names?

A factory that would provide 5000 jobs will be able to turn out a substantial number of cars. What gives Yang Rong the confidence that anyone will buy them?


  1. Looks like another manufacturer claiming a competitive advantage on the basis of its 'cutting edge' technology - although an unidentified one.

    Various other questions too....

    Why would they manufacture in Alabama (beyond the attraction of some local subsidies, and Yang's own difficulties in visiting a business operating purely in China)?

    Are they saying that costs-to-manufacture in Alabama are going to be more attractive than in China itself? Or that the production line is destined to be sold in the US (in which case your question on brand strength looks even more pertinent)?

    Yang is clearly a wheeler-dealer but this particular plan looks dubious. Isn't he the one who built the Holland Village white elephant, and then got entangled in North Korean politics? Perhaps it prepares him for life in the Deep South.

  2. Thanks, Will. Good questions.

    I am assuming he wants to manufacture in the South for similar reasons as BMW, Toyota, Nissan, Hyundai and others. The workforce is still highly productive, but Southern states being right-to-work states, unions are less active than they are in the North, so wages are lower.

    Cars built in the South are primarily for sale in the US. And while I don't have any figures on this, I am guessing the productivity of the workforce and the lack of shipping costs across the Pacific would still make a Southern-built car a better value than one that could be built with a cheaper, but also less productive, workforce in China.

    When I first heard the story of Yang Rong a few months ago, like you I also wondered if he was the same Yang that had been involved with North Korea. He is a different guy though. The other Yang, Yang Bin, is still in prison in China.

  3. Thanks for clarifying on the Yangs.

    The productivity issue is an interesting one. Perhaps there is a quality angle too.

    But it is interesting to see a "Chinese" firm opt for US production in the same week that GM announces a third plant in China.


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