Why It's Hard for Some New Brands to Sell Cars in the U.S.

Regulations and brand awareness make launching a division in the United States expensive.

Ronan Glon | 

Dec 12, 2024 | 5 min read

Alpine

As of 2023, according to statistical data company Statista, the United States is the world's second-largest market for selling cars after China. This market can be attractive and potentially lucrative for automakers, but gaining a foothold here may prove difficult for some newcomers.

Vietnamese company VinFast began delivering cars to buyers in the United States in 2023. Renault-owned sports-car manufacturer Alpine is one of several European companies considering the U.S. market by 2027. This is a mere trickle of fresh brands compared with what the U.S. market used to experience.

Tough Standards Deter Automakers From the U.S. Market

In the aftermath of World War II, relatively loose regulations made selling cars in the U.S. straightforward. Companies needed to make minor market-specific changes, find a distribution channel, and ensure adequate customer service. This partially explains why the list of car brands for sale on our shores in the 1960s was longer than in the 2020s. Citroën, Lancia, Renault, and Opel were among the brands present then but aren't marketed in the U.S. now.

Stricter regulations gradually widened the gap between U.S.-market and European-market cars. U.S. government officials made side-marker lights mandatory starting in 1968, and a 1940 law requiring the use of sealed-beam headlights kept some of the more advanced lighting technologies released in the 1960s from being sold here. The 1970 Clean Air Act forced carmakers to design cleaner engines, and the 1973 model year brought mandatory 5 mph bumpers.

European nations didn't adopt these norms. They wrote their own rules instead, so the global car concept began to erode. Today, even fuel-economy measurement differs significantly from continent to continent. This lack of consistent international standards partly explains why many car companies have left or won't enter the U.S. market.

"The U.S. market has traditionally been one of the toughest markets for automakers to tap into," said Ed Kim, president and chief analyst of automotive marketing research and product-consulting firm AutoPacific. "The U.S. federal motor vehicle safety standards rules are probably the toughest in the world, and automakers often have to engineer unique components — such as stronger bumpers and turn signal lamps — specific to the U.S. market."

The Environmental Protection Agency also has its own regulations for emissions and fuel-economy standards, and Kim said that those can present compliance headaches for automakers.

"Certainly, all this can add significant cost to a vehicle," Kim said, "so these substantial federalization costs must be factored into a vehicle's business plan."

Toyota

U.S. Legal Doesn't Necessarily Mean U.S. Ready

Designing a car for the U.S. market is one thing; successfully selling it is another.

Beyond regulations, according to Kim, carmakers must also take into account the high standards of U.S. customers.

"Most Americans won't accept a vehicle that may meet FMVSS crash standards but doesn't score well on crash tests," he said, "so a successful vehicle in the U.S. must actually greatly exceed the minimum safety standards mandated by law. In addition, U.S. customers are very sensitive to perceived quality."

Mainstream companies selling cars in global markets usually offer U.S.-specific products and trim levels. Toyota developed the Tacoma pickup truck specifically for the United States. It sells the Hilux, a similarly sized truck designed with a greater focus on durability, in overseas markets. The Texas-built Tundra is U.S. focused as well.

In contrast, Toyota positions the 146-inch-long Aygo X as its European entry-level model. Even if the subcompact crossover vehicle passed National Highway Traffic Safety Administration crash tests and safety regulations and EPA emissions tests, its small size could make sales success unlikely here.

Although a U.S.-compliant Aygo X may not fare well in a market dominated by big trucks and SUVs, buyers would likely recognize it as a Toyota, a company known for reliability and value. If they wanted one, they could get it from one of the nearly 1,500 Toyota dealerships nationwide. Smaller carmakers such as Alpine and Cupra wouldn't benefit from brand awareness or a dealer network.

Brand awareness explains why nameplates have stuck around for decades. Mercedes-Benz's C-Class is now in its fifth generation of production. Awareness morphs into loyalty if the brand's reputation is positive. Toyota's car range enjoyed a 60% loyalty rate in 2023, while Ford's truck line posted a 64.6% loyalty rate. To replicate this success, newcomers must earn a reputation through quality products, which can take years.

Solving the distribution problem is relatively simple. Due to cost constraints, most new brands can't justify setting up and operating a whole dealer network. Some, such as Lucid, follow Tesla's example and sell cars directly to consumers, though several states ban this practice. Others sign a retail agreement with a dealership group. Alfa Romeo and Fiat returned to the U.S. in the 2010s after a decades-long hiatus. They leveraged their connection with the Chrysler group to set up distribution channels.

There's a Change in Mentality Among U.S. Consumers

At first glance, the odds are stacked high against newcomers such as VinFast. Kim said, though, that U.S. motorists are increasingly open to buying a car from a brand they don't know.

"In the past, U.S. consumers were very wary of unknown brands, and new entries needed years to grow their brand image," he said. "With the arrival of Tesla, however, Americans are now much more open to new and unknown brands, and this is important given how many new brands are aiming to enter the U.S. market, particularly in the EV space."

While that can be encouraging for companies such as Alpine and Cupra, he added that duplicating Tesla's success is easier said than done because it requires a portfolio of compelling and innovative products. There was nothing quite like the Model S sold in the U.S. when the electric sedan debuted in 2012. Tesla's Supercharger network played a significant role in alleviating range- and charging-related concerns.

"Any new brand, which will be at a disadvantage because it's unknown," Kim said, "must also offer breakthrough attributes that are truly new and unavailable anywhere else."

Ronan Glon

Ronan Glon is an American journalist and automotive historian based in France. He enjoys working on old cars and spending time outdoors seeking out his next project car.