HOWARD TULLMAN JOINS LISA DENT ON WGN RADIO TO DISCUSS THE COMING CHINESE CAR INVASION

LISTEN TO THE SHOW HERE 

LISTEN TO THE SHOW HERE

NEW INC. MAGAZINE COLUMN FROM HOWARD TULLMAN

 

Marketing

How Automakers and Car Dealers Can Survive the Chinese EV Onslaught 

We’ve seen this movie before. And it’s a lesson for all entrepreneurs about how to position your product for a changing market. 

EXPERT OPINION BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS @HOWARDTULLMAN1

JAN 7, 2025

Several decades ago, I was directly involved in one of the greatest efforts ever to position and brand entire new lines of luxury vehicles, whose Japanese manufacturers were planning to enter into the U.S. market. I was the CEO of a company that made millions of calls each year to measure the relative satisfaction of car customers with their sales and service experiences.

In the mid-1980s, the overwhelming perception by U.S. vehicle owners was that cars made in Japan were cheap-looking and unstylish, despite their reliability. We advised management at both Nissan and Toyota (and eventually Honda) that to succeed in the luxury space, they needed to establish new brands and new dealership facilities, and to enforce exceptionally high standards of dealer sales and service behavior. An elite group of existing dealers were awarded the opportunity to sell these new brands based on exceptional customer satisfaction levels as measured by our surveys and technology.

It was a given, of course, that the actual quality of the new cars needed to be high, but that was less of a concern than the need to overcome the negative consumer impressions of vehicles made in Asia. Luxury German, Italian, and English cars screamed elegance – but Japan conveyed a different image. 

Remaking that image is the origin story of Infiniti (Nissan), Lexus (Toyota), and Acura (Honda). These brands – at least in the cases of Lexus and Acura – have triumphed in America and come to be regarded as high-end, high-quality luxury lines with most car buyers not making the slightest connection to the parent companies, or to any remnants of their former prejudices and perceptions.  

Can Hyundai’s Genesis Pull Off the Same Branding Trick?

The latest entrant into the luxury branding sweepstakes is Hyundai, and the exceptional job it has done since launching the Genesis luxury brand in 2008 – again without the slightest look backward at its origin as a low-end Korean manufacturer. While most consumers still don’t even recognize the brand or badge, Genesis sales have continued to accelerate. New models have been added to the lineup and massive, flashy TV advertising has driven increased awareness. The cars themselves look largely indistinguishable from the major European luxury players (which the latest Genesis ads insist isn’t the case) while the built-in gimmicks, gadgets, and electronics are actually leading edge.  

Interestingly enough, and a lesson for entrepreneurs and startups, is that much of the new tech in these cars is relatively untested and somewhat unstable, but the advertising and promotion value of being leaders in the space has seemingly overcome the desire to make sure that all the stuff actually worked as promised. The major players are far more concerned, constrained, and even regulated in these areas and – as a result – are far behind. This is very much reminiscent of the Tesla self-driving fiascos, which are instances of the same old “forgiveness rather than permission” philosophy, but sadly, much like Theranos, represent serious ongoing risk to life and limb.  

BYD Is Yet Another Asian Competitor Ready to Crack the U.S. Market

The next vehicle invasion is already underway. This time it’s coming from China with brands and players, like BYD, that most car owners have not yet even heard of. They will soon. While the Musk-hyped media continues to drool over Tesla and bolsters its market cap, Tesla made about 1.8 million vehicles globally in fiscal 2023 while BYD produced more than three million EVs and ranked as the world leader. “Made in China” used to have negative connotations – similar to the earlier Japan issues – before the world learned that everything that Trump sells to the MAGAt suckers is manufactured in China and that’s made things apparently hunky-dory with the cult. 

We’re now watching Tesla sales decline for the first time in a decade, with the often-ridiculed Cybertruck leading the downward spiral. This is partly political, tied to CEO Elon Musk’s hard right turn and his boorish and infantile behavior.  Driving one of those monstrosities may soon be perceived as the vehicular equivalent of a MAGA hat on wheels.  

In fact, especially where certain energy technologies like batteries are concerned, there’s an understanding and even acceptance that China is now leading the pack. So, no one’s worried about hiding the backstory and both Elon and Trump can’t get seem to get enough of Xi Jinping. Tesla has its own very substantial facilities in China and is highly dependent on materials supplied from there as well as the revenue from the many Tesla vehicles sold there.

Trump has been talking big about tariffs on Chinese imports and also eliminating the EV tax credits, but most of that conversation was before he and Elon made their unholy and wholly confusing partnership. I’m not betting that anything adverse to Tesla (or Tik-Tok for that matter) is likely to happen any time soon, since nothing talks louder or more persuasively with the Orange Monster than the money that people put in his pocket. It’s also possible that Chinese firms have already begun planning to create assembly (and possibly manufacturing) facilities in the U.S., which would be expressly designed to get around any Trump tariffs.  

In fact, to give Musk his due, if it weren’t for Tesla’s cumulative edge in data capture, which will be critically important to the next autonomous generations of EVs, the Chinese would probably roll over the entire U.S. vehicle industry. There’s a precedent. Various Asian players have already done so in the steel industry, even as President Biden blocked their latest acquisition actions – Nippon Steel’s attempt to buy U.S. Steel.  

Car Dealers Will Need to Stay Aggressive

The Japanese vehicle invasion of the 1960s and ’70s caught U.S. manufacturers largely flat-footed. On the other hand, the biggest and smartest dealers that had available capital jumped on the new bandwagon, built new dealerships, and largely shut out any new entrants into their respective marketplaces. The captive dealers that were still playing the Detroit game and thus largely dependent on the old-line manufacturers lost several competitive steps and still haven’t really recovered. Today the mega-dealer chains like the Penske Automotive Group (with more than 200 locations in 28 states) have continued to expand and are probably already positioning themselves to add Chinese lines to their domestic offerings.

While some of the best and biggest of these dealer chains may finesse parts of the risk, most dealers won’t be able to resist the invasion by themselves. The prior Japanese history should be more than a fair warning that, if the domestic manufacturers don’t aggressively step up their EV game, they may lose this battle as well. That means millions of Americans will be driving BYD vehicles by 2030, if not sooner.  

NEW INC. MAGAZINE COLUMN FROM HOWARD TULLMAN

 

If Carmakers Want to Sell EVs, They Need to Sell the Dealers First.

The lesson here is that, in many businesses, you need to get the sales team on board first; the buyers will follow. 

 

BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS@HOWARDTULLMAN1

 

In 1980 I started CCC Information Services, which is still the world leader in providing the automotive insurance industry with vehicle valuation data. Like many entrepreneurs, I struggled initially with a problem I couldn't anticipate. CCC's greatest early challenge was securing the cooperation and participation of tens of thousands of car dealers so that we could capture and incorporate their new and used vehicle information, and their actual inventories, into our valuation systems.

The premise was that real-time market data about the average asking price for a particular used car was the best and fairest way to establish the amount to be paid by an insurer in the event that a comparable vehicle was stolen or destroyed. Securing the dealers assistance turned out to be a very complicated task for reasons that are especially relevant today as automotive manufacturers, dealer ownership groups, and the last of the individual, old-time, family-owned dealerships confront the issues posed by the oncoming deluge of electric vehicles along with the emergence of new generations of owners, professional managers and operators.

Today most car dealers aren't really much interested in selling EVs;  in a recent survey, more than a third of them said they wouldn't offer an EV to their customers even if they could. Adding EVs, funding new staff training along with the incremental equipment costs necessary to maintain and service the new cars, building out new showrooms and display space, and facing uncertain near-term demand all mean that EVs aren't especially attractive undertakings. This is one of the major reasons that Tesla-- after lengthy battles with dealer groups, state regulators and local politicians who had been in the dealers' pockets for years-- built its own direct-to-consumer sales organization and its own outlets.

Talking to a car dealer (who is laser-focused on today's sales results) about a five-to-ten-year time horizon for substantial EV sales volume to develop is like trying to sell an anvil to a drowning man. It's not easy to sell these guys anything because they're world-class skeptics. They have the attention span of a typical teenager, the patience of a fruit fly, and they don't trust anyone-- especially to the extent that it concerns new technology. The U.S. goal of having 2/3 of the new cars sold here be EVs by 2032 seems like a pipe dream when you talk to most dealers. They don't have a clue as to how we're going to get from here to there.

To be honest, most established dealers today are fairly fat and happy with the way things have gone for them and their families for decades. They may have family and generational challenges, as do many other industries, but they've also had exclusive territories, scarce inventories, political protection, and very little price competition.  They don't like change, they don't like spending new money, and they're not really sold on the vehicles themselves.

We faced this kind of resistance and inertia when we first tried to introduce CCC.  The best way to value a car that had been stolen or destroyed (a total loss) was to find several existing comparable vehicles that were as close in age, features, and mileage to the lost car as possible. The insurer's adjuster could then point the insured or claimant to the available cars, give them a check based on the comparable values, and tell them where the cars could be found.

Our two-part pitch was pretty straightforward: (a) we'd do all the work; and (b) because we'd be handling hundreds of claimants every day who had just lost their cars, we could provide a steady stream of prospective customers who were interested in cars that were in their inventories and actually sitting on their lots -- and had insurance checks to pay for them. More importantly, even if the prospective buyer didn't want another version of the car they had been driving, they definitely needed a car, and they could be sold an alternative or even a new model. We thought that dealers would be drooling over a steady flow of prospects looking at their used car inventories. But what seemed like a no brainer took years to accomplish and to scale.

There were three main barriers to acceptance by the dealers, apart from their simple laziness and complacency. First, they regarded their used car operation as a necessary evil, not a part of the business that they really cared about. Second, they were reluctant to invest time, money, or effort into these cars (even something as simple as capturing each car's specific features, add-ons, and mileage) because they regarded them as fungible assets that would be on their lots for a short time and then, if not sold, sent to auction or scrapped. And third, used car sales represented a small percentage of their annual profits.

Even apart from the fact that there won't be too many used EVs any time soon (even though Elon is trying his best to make owning a Tesla an embarrassment), as noted above the dealers see plenty of similar problems with jumping into the new EV line of business. The manufacturers are trying very hard to push the EVs out the door-- a loaded dealer is a loyal dealer--because at scale they're much cheaper and easier to make than traditional cars and command higher prices. But the dealers are going to need to be bribed, cajoled, and eventually dragged across the finish line. The bright spot for the carmakers is that they have seen this situation before and have a pretty good game plan already prepared.

The first solution is the Carfax model. Dealers absolutely hated Carfax when it first emerged because the absolute last thing they wanted to do was to tell their customers about the nasty past histories of the used cars they were trying to sell them. So, Carfax jumped right over the dealers and went directly to consumers with a pitch that said only an idiot wouldn't check out a used car before they bought it. Today, almost every dealer in America offers customers a Carfax report (or one like it) as a free benefit and assurance. Tesla has already shown the way for the other OEMs to reach out to and convince the buyers of the benefits of the EVs in order to drive sufficient traffic and demand to win the dealers over.

The second solution is to move the whole discussion upstream in the consumers' minds and turn the EVs into a premium item and a status symbol (as Tesla has done so well) rather than simply a transportation tool. This is a page from the Japanese manufacturers who created entirely new and distinct imagery and marketing for their luxury cars to separate them from the public's perceptions about their legacy brand's quality and value. Lexus (Toyota) and Infiniti (Nissan) led this strategy with entirely separate stores and branding, and demonstrated the potential for substantially greater profits, renewed customer loyalty and improved dealer reputations. Today we see Genesis vehicles, which no one would ever suspect are a Hyundai product, independently marketed for the same reasons. Interestingly enough, at the other end of the economic spectrum, Hyundai also has just announced that Amazon will begin selling its cars online with delivery made by local dealers.

Finally, the manufacturers need to understand that, for a substantial period of time, they're going to have to share in the costs of the EV transition with the dealers. To jumpstart the adoption and use of the CCC system, we had to build our own internal sales staff -- not to sell the CCC system -- but to actually help dealers sell the cars to the insured buyers. Once they saw the program working, they eventually took it over for themselves.

The OEMs are going to have to finance equipment, subsidize EV training in both sales and service, and lobby nationally for extensive state and federal investments in charging stations if they want to win over the roughly 12,000 dealerships out there today who are sitting on the fence.

The bottom line is an old and simple rule: nothing good happens to a business without salespeople who are willing to sell your product.