Cars, Cars, Cars
October 19th, 2006Two items of note about China’s auto industry:
1. Keith Bradsher of The New York Times has written a good piece on the plans of PRC auto-makers to export cars to the U.S., reporting that generally PRC car companies are pushing back their plans to launch in the U.S. He finds concerns over safety, styling, emissions, performance (though not necessarily reliability) and marketing are making it “a lot harder than automakers here anticipated to make cars that appeal to Western tastes.”
Of course, Chinese car maker can become quite wealthy without appealing to Western tastes. Besides aiming to dominate their own market, PRC car makers are likely to export cars to Eastern Europe and other developing economies (I imagine quite profitably) before they crack the US/Western Europe/Japanese markets.
But one day, a car company with a name like Geely or Chery won’t sound as silly as it now does to US ears (and as I imagine Honda, Toyota or Hyundai once did, too).
2. GM’s operations in Shanghai are contributing to GM’s precarious bottom line, or so we can intuit from their 37% growth in China sales for the first three quarters of 2006, according to this AP story carried in the IHT. GM says it (and its various PRC joint ventures) sold 645,680 units in China in Q1-3.
My MBA Doing Business in China travel courses have included visits to the Shanghai GM plant in each of the last two years. It’s a popular destination; GM is gracious to let lots of people visit. The production floors are big, loud and impressive (and would seem to be models of efficiency in comparison to the assembly line problems Bradsher observed at a PRC manufacturer, in the Times story above).
However, once you’ve seen the factory, GM’s PR staff is tight-lipped about profitability, labor cost saving and any disputes they may have had with their Chinese partner. My MBA students, getting nowhere with the GM spokespeople, did their own calculations, multiplying unit sales times an average price, then factoring in an estimated labor cost savings, then adjusting for the share in profits taken by GM’s China partner, and adjusting again to assume some other costs are higher in China—and they still figured Shanghai GM is throwing off hundreds of millions of dollars.
The Chinese journalism students I spoke with this week had just visited the Shanghai GM plant themselves; they also found that GM’s spokespeople prefer not to speak on many issues (which led us to a good discussion about what public companies are obligated to disclose).
On a much more general level, as an SUV-driving American I should not cast the first stone here, but I must say the huge upsurge in private cars in China really alarms me.
China might have done something different than mimic U.S. car gluttony, but so far it has chosen not too. There are large benefits in terms of employment and raw economic growth, but will it be worth it in the long term?
Some years ago I commented (when reviewing a paper about China’s auto industry at an academic conference) that one day the Chinese may regret their country’s decision to develop a mass auto industry just as much as many now regret the failure to control population growth under Mao. The decision to develop a mass domestic personal car industry, like the decision to ignore advice about population growth, will have serious, long-term consequences.
Beijing’s traffic is already becoming impossible, and the pollution, which I assume is partly due to the number of cars, is horrendous.
We are just beginning to see the global environmental, economic and political consequences of China’s automobile explosion.
No matter which car companies succeed, will their success really be a positive human achievement?
Unless a super-Prius or some other innovation rides to the rescue, what will happen to the planet when, say, half (or only a quarter?) of the Chinese have cars?
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