Here come Chinese cars (Detroit alert!)

Business Week ^ | 09 june 2005 | Business week

[voletti]

Korean cars gave Detroit fits in the late '90s by undercutting domestic small cars on price and outdoing them on quality -- then moving up into other segments. Autos from China could provide more lower-cost competition for the Big Three at a time when GM and Ford Motor Co. (F ) are already reeling. That could cost them, along with Chrysler (DCX ), more market share and prod them to move more of their own production offshore.

How fast can the Chinese gear up? The way things are going, it won't take 20 years to match Toyota Motor Corp. (TM ) quality levels, as it did for the Koreans. And with Chinese auto assembly workers earning $2 an hour -- vs. $22 in Korea and nearly $60 in the U.S. for wages and benefits -- it may not be long before China has the wherewithal to start selling competitively priced cars overseas. "The Chinese are probably five or six years away from being able to sell a competent low-end car," says auto analyst Maryann N. Keller.

The Chinese government is putting its heft behind the export push -- subsidizing the export drive of such local players as Chery and giving the likes of Honda big incentives. Beijing also is nudging foreign auto makers to divert investment into export production so local partners can become familiar with managing foreign-exchange risk and global supply chains. It's also pushing domestic companies such as Chery, Geely Auto, Brilliance China Automotive (CBA ), and Shanghai Automotive Industry to develop their own brands overseas.

[Flying Circus]

Christianity is my religion, free trade just makes sense. The economic theory makes sense and it is truer to a freedom loving mindset. Anyway you go about restricting trade takes away some freedom for consumers as well as creating inefficiencies in our economy.

I do not favor trade with countries with coercive labor practices. For my personal policy I avoid buying Chinese made products even if it means paying more. However I will not pay more or accept inferior quality just because it is made in USA. Japan, Korea, India, Germany and most other countries do not use coercive labor practices and I see no reason not to buy their products as long as they are a good value. If other countries want to restrict their domestic markets, they hurt themselves more than us.

[Flying Circus]

It is a free country... if they can't find a job in Buffalo they can move to where there is a job. I grew up in the midwest, I couldn't get a job there, I moved to California (so you are right, I do live in lala land) and got a job. When the job here goes away I'll go somewhere where there is a job.

I know other countries subsidize industry... my argument is that, in general, subsidies are an inefficient and stupid practice. The cost to the country is far greater than the benefit. Subsidizing an existing industry happens at the cost of other emerging industries. The Japanese subsidize the heck of of their industry and what has it gotten them in the last 15 years??? Not much.

[Gatún(CraigIsaMangoTreeLawyer)]

For the millionth time:

...my husband works for GM in management...

You sound like Kerry reminding us every other second of his Vietnam gig.

[nyconse]

Yes...countries our workers must compete with subsidize their companies and also supplement their workers with health care and pensions that the companies are not responsible for...as for moving if this trend continues, there will be no where one can move to and get a decent job. I suppose you think a country of hamburger flippers can be great...I wonder who will be able to afford to buy hamburgers eventually. I hope you can always find a job...I wish no person unemployment, but I fear good jobs will go away...we will be left with a depressed population who will turn to socialism. I have no idea what to tell my children when they ask my advice on future careers...I don't know what if any decent jobs will remain in this country in 20 years.

[nyconse]

My point is that my husband is not union. We are management, and yet we think unions are being unfairly castigated and demonized in order to promote a trade policy that is unfair and will seriously injure all American workers ultimately. I should note my husband was pro-globalization for a number of years. However, he has watched how unfairly the US is treated in the free trade world and now feels quite differently.

[meatloaf]

Chinese made and quality aren't the same thing. If you doubt that buy some structural fastners like one water district did. Just make sure your liability insurance is current.

If it's anything hardware or hardware related and Chinese made, you can't use it for anything safety related or in any situation where failure would result in damages you're not prepared to pay for.

[Flying Circus]

You say that you want to stop our country from turning to socialism be turning to socialist policies? Do you realize how little sense you are making? All these other countries do is shift the costs around... the costs are still there only how and who is paying them is changed into a less-than-zero-sum-game. What is worse is that government managed economies are less efficient and inflexible to a changing business climate.

[Dog Gone]

Chinese steel has been a problem in the past. Using a screwdriver made in China was like using a piece of cooked spaghetti.

I'm not sure whether that's still the case today. It probably is variable by product.

But the fascists running China will make sure that Chinese steel is up to standard in the future, even if they have to shoot a few people to force some action.

[MississippiMasterpiece]

Chinese cars? I guess we can expect to see them stocked at our neighborhoods Wal-Marts.

[RightWinger]

When Korean cars first came out, they sucked on quality. I think they are on par with American cars now.

I still believe Japanese cars made in the USA like Camry, Accord and Maximas are better than so called American cars.

[Nowhere Man]

Christianity is my religion, free trade just makes sense. The economic theory makes sense and it is truer to a freedom loving mindset. Anyway you go about restricting trade takes away some freedom for consumers as well as creating inefficiencies in our economy.

I do not favor trade with countries with coercive labor practices. For my personal policy I avoid buying Chinese made products even if it means paying more. However I will not pay more or accept inferior quality just because it is made in USA. Japan, Korea, India, Germany and most other countries do not use coercive labor practices and I see no reason not to buy their products as long as they are a good value. If other countries want to restrict their domestic markets, they hurt themselves more than us.

Points taken but when people ose their jobs, the freedom under the system is just an illusion when there are no other good paying jobs to take their place, people will be constrained by having little or no money.

I know that pure socialism/communism, that doesn't work, you get inefficiency and no one cares. Maybe at one time, laisse faire capitalism was the answer but I think we have evolved as a society beyond those paradigms. As I said al ittle bit ago, pure socialism/communism isn't the answer but with pure capitalism, although it has done some great things in the past, my faith in it has eroded to the point to where that doesn't fill in the gap either. True if you take the two on their merits, capitalism is better than communism/socialism but the way thigs are headed now, it is like comparing a Chevy Vega (capitalism) to an East German Trabant (socialism/communism). Given the choice, I'd take the Vega but that doesn't quite feel the needs of society and her people. I think in the political areana, I would be called a right wing populist, had I lived 100 years ago, a member of the People's Party (Populist) or Teddy Roosevelt's "Bull Moose" Progressive Party. (not to be confused with what the word progressive means in today's politics)

I know myself, I am very conservative on social, military and moral matters, but I'm more of a centrist economically. I think we need to look at different ways and experiment if we are to live in this brave new world and be open to new ideas. On the economic scale, I think the left and right do miss the target on certain things.

I think under both systems, you end up with the concentration of economic and political power in too few hands and this is bad for everybody. We need to think outside the box. We have a huge fight ahead of us, not only on social and moral issues, but economic issues that would gurantee our sovereignty and security as well as support society.

If we don't do this, we will either cease to exist at some point or at the very best, end up having a Swedish or Dutch style welfare system to take care and/or augment the gaps many will experience due to the lack of good paying jobs. I have a good friend in Sweden, he does well under their system, but I don't want that here, what may work for 6 to 8 million Swedes will be a disaster for 300 million Americans. Still if this is not address, out of pragmatism we could end up going that way because people will demand some answers which I can't blame them.

I know you mean well, BTW, congradulations on your wedding last year (I looked at your profile page B-)), plus I admire you for not buying Chi-Com products, I know, it is hard to do, but what concerns me is that if we keep going down this path, we might end up with more socialism as a default than we have now. Maybe some of what I would propose and other here as well might sounds like socialism, but (on economic matters, not morals, don't want to confuse anyone) the issue is not black and white but made up of many greys. I have to ponder and think of "What will be the best to help the most people and the security of the nation" and go from there and experiment.

I don't have all or even some of the answers, it will take some thinking but I would start with a tarriff on products made under poor working conditions that will be tied to the costs of making them here to balance things out.

[Nowhere Man]

This is quite true...I can not understand why anyone supports globalization given the protectionism that foreign competitors enjoy via their government policies and the beating our businesses get at the hand of our government-excessive regulation and failure to make foreign competitors live up to their worthless agreements which American businesses must adhere to.

That's a good point too, we have certain regulations here, not all of them are bad while others are plain stupid, I would have to weed out and pick on what I would toss out and what I would keep. Many nations don't have the environmental laws we have or that Western Europe has and that hurts us. I'm the furthest thing from a greenie but I do see the need to convince the Third World to learn better environmental protection methods although it should orginate from the countries themselves (along with pressure from individual nations like the US and so on, I don't support Kyoto or any UN style force on any nation) to come up with their own regulations.

[GoldCountryRedneck]

"....I will never buy anything from CHINA.....

Pretty difficult.

Juts as idle curiosity I pitched everything I came across in my own home which was "Made in China" into a pile. I intended to box and send it as a protest in some political issue long ago.

I was AMAZED at all the items! Quite an education!!

Even stuff "Made in the USA" may have "Made in China" components!

[spetznaz]

I happen to like the Aztec...myself.

OMG. My goodness gracious!

You are a prayer answered. I've always wondered why someone would ever buy (or like) an Aztek, and maybe you can be able to explain that to me. Not only is that vehicle aesthetically challenged, but it also has one of the lowest residual values of any vehicle out there (31.1% of value). And not only that but it has been grilled by every single automotive group and publication out there, and is used as an example of what happens when management makes imprudent design decisions and 'guided' focus groups (plus the fact that this was the baby of Rick Wagoner, GM's head honcho ....and probably the only reason it is still alive even with its ridiculously low sales).

But all the same I have to wonder why anyone (apart from Rick Wagoner, obviously) would love the Aztek? IT doesn't have value (while cheap ....especially once GM's usual incentives are added ....it still lacks sufficient utility to impart true value to it. It is merely cheaper). There are many better alternatives (including a bunch of American made options ....although sadly the top ten lowest residual values in the Aztek class were all American : # Chevrolet Blazer — 29.8% # Pontiac Aztek — 31.1% # Dodge Caravan — 31.8% # GMC Safari — 32.3% # Pontiac Montana — 32.4% (doesn't apply to Montana SV6) # Chevrolet Venture — 32.6% # Ford Freestar — 33.3%). But all the same there are definitely better choices than the Aztek. And then there is the aesthetic aspect ....or in the Aztek's case a lack of it.

Hence, what is there in the Aztek that can inspire love and/or inspiration? That vehicle is basically thought of as the worst thing with wheels today. The modern version of the Yugo. What is there to like about it?

[InterceptPoint]

Explain exactly how American workers can be expected to compete with those that earn two dollars an hour?

Don't get mad. I'm sympathetic with you but the handwriting is indeed on the wall.

The answer to your question is that people in this country are going to have to learn how to do things other than manufacturing because we have found a less expensive way to perform that function. American workers are the best in the world but they are not now and never will be the least expensive.

What I think will happen is that manufacturing jobs in this country will slowly but surely disappear. American workers will be out of a job and on the hunt for new work. They will find it in places where workers with good work ethic and work skills are needed. The skills will be different so people will have to adapt. My prediction: they'll adapt and they will find themselves doing much more interesting work doing things that the Chinese are simply incapable of doing using tools that the Chinese cannot afford to provide their workforce.

Keep the faith. This is a great country.

[meatloaf]

Why should they change? They seem to be selling everything they make to WalMart, Lowes, Home Depot, etc. and they have no liability. I looked at some galvanized lag screws last night that were so bad, I picked through the whole bin to find the best ones. I still bought a larger size because I figured the strength was suspect.

I also found out that the compression fittings for copper pipe have been redesigned to a much thinner wall thickness. I went to a real hardware store later and found they had old and new stock in the same bin. You could easily pick out the new stuff. You could distinguish the old from the new by weight alone. The wall thickness on the new stuff looks like it's barely thick enough to cover the root diameter of the thread. Those fittings if they don't crack after first being installed are bound to crack sometime afterwards and start a leak that if not caught will rot out someones particle board underlayment in their megabuck house.

Someone saved a few cents that will result in homeowners spending thousands to rip up floors, remove fixtures, and cleanup mold. Once the whole mess is fixed, the new fitting will crack just like the one that did before.

It's the new American corporate standard. Redesign it to reduce the cost even if it can't do the job like the old design did.

Most go for the penny savings not understanding it can end up costing someone thousands of dollars, not pennys. FU America. We're cutting our costs, getting our bonuses and screwing you at the same time. Most Americans have no clue.

Too many go for the poisoned bait of cheap stuff. I think the Chinese cars are going to hot sellers because of the cheap price alone. When it craps out a few months later. The owner will be glad they took advantage of the twofer offer at Walmart. That way they'll have a spare car and still pay much less that what Detroit wants for one of their plastic abominations.

I wouldn't want to own stock in a plastics company once Detroit goes belly up.

[Hank Rearden]

This might finally kill off the Rust Belt unions and their mafia friends.

Good.

[spetznaz]

BTW: I do not think most people here are arguing about the foreign wages vs US wages stuff. The paramount objection people have is the low quality of US vehicles versus foreign vehicles (unless you go to the higher priced US vehicles, for example the new Cadillacs, which have great quality but with a price higher than what most can afford. And anyways a Cadillac may have good quality, but it goes into BMW territory where it faces its own brand of tough competition). Anyways, if GM and Ford start making quality cars (and by quality i mean in terms of both functionality as well as aesthetics ....thus no more Azteks) people will buy the cars. But if Detroit continues to churn out sub-par vehicles then do not expect people to buy them just because the headquarters are in Detroit.

Two quick points:

1) The Japanese came and totally changed the paradigm that automotive companies worked with. And from the 70s the Japanese were synonimous with high quality and great value (the value that comes from great utility instead of merely cheaper price ....there is a big difference, something Detroit has apparently never noticed). And while the Japanese were taking over Detroit was doing NOTHING but the same old-old! They even laughed at the Japanese quality initiatives (whcih by the way were taught to the Japanese by Americans like Deming who had been laughed out of Detroit, yet was accepted with open arms in Japan). Then the Koreans came here in the 90s, and for many years Hyundai was said to have the worst quality levels. However they are currently ranked as havign among the highest quality in their products. In 5 years the Koreans (Hyundai) went from crap cars to good/great cars. And what was Detroit doing during this time? Same old-old. And look at maket positioning ....the foreign brands are perfectly positioned to take care of future desirability and technology shifts, yet Detroit (in particular GM ...at least Ford has taken serious steps) has been placing its future on big SUV and pickup sales for the last 5 years. And do not get me started on some of the ridiculous deals GM has done, such as the Fiat acquisition deal where it paid billions for the right to buy up that company, and then paid billions more for the right to extract itself from that option! Pure money down the drain!

2) Look at what GM management has been saying, in particular Vice-Chairman Bob Lutz and Headhoncho Rick Wagoner. Some of the stuff they say is totally defeatist! For example Bob Lutz said the following: "Audis and Mercedes-Benzes and BMWs and most of the cars that we know and love — that’s exactly the reason we buy them… because they’re engineered for unique European requirements and tastes, and not for American requirements and tastes.” However Rick Wagoner had far more sense to say something that was quite truthful. He said that GM needs to move away from merely offering good financing deals for their vehicles and instead start offering good vehicles that sell themselves. I guess he must have been concerned with GM having to offer thousands of dollars of incentives so as to move their vehicles (and still suffering cars sitting on dealer lots), yet Toyota was premium-pricing their vehicles and still selling them like hotcakes. Thus Wagoner had some sense (even though I still doubt it since he gave the greenflag to the Aztek ...but anyways).

Anyways, the problems at GM are not due to Chinese workers earning 2 bucks! They are due to poor product designs, low perceived and actual quality, upper management that is totally out of its mind, and legacy issues (for example the UAW) that basically burden GM with amazing fixed costs. And even with all of that there is still more. GM had since the 70s to change the way it works. It had an amazing head start over ALL foreign competitors, but it did nothing. To the extent that it was whipped by Hyundai ....a company that was known for crap a mere 5 years ago! GM thought their bulk was sufficient to dominate the market, but they were wrong. They had more than ample time to fix things, but they just sat on their laurels as foreign companies came and handed them their lunch. First it was the Japanese in the car segment, now it is the Koreans (in the car segment) and the Japanese again (in the SUV and soon truck segment), and in the next 10 years it will be the Chinese.

The problem with GM is not some 'slave worker' in China ....the problem with GM is 100% in Detroit. It is poor vision and stagnant inertia. That is it. And while it is nice to blame external forces the truth still is that GM put themselves squarely where they are now.

What can they do? Well, Wagoner (in one of his increasingly rare fits of wisdom) hit the nail on the head. Start making quality products instead of churning out sub-par stuff that has to rely on incentives up the wazoo to sell. They also need to start leading instead of merely following the other players. GM should be leading the automotive industry, not following Toyota. They also need to get rid of the stagnant inertia that exists in all levels of GM. It appears as if they only do what is necessary and nothing more. Also they need to work on the perceived lack of quality by the populace, and one way of doing this is aping what Hyundai did. The Koreans, knowing that people thought their vehicles were crap, instituted 10 year warranties. GM should do the same for all their vehicles priced below 40K. Now, one might say that it would be expensive ....BUT if they TRULY improve quality then it should not be a problem (just as it wasn't for Hyundai). But in the end it is all about making something people want. In terms of value (and again i mean utility and NOT cheaper price due to incentives .....UTILITY), looks (no one wants to drive something that looks like it fell from the ugly tree and hit every branch on the way down), and functionality (no one will buy a US car that breaks down in 6 months when their neighbor has a Toyota that has been going strong for 6 years). If GM does that then it will not have to worry that much abut 'slave labor' in China.

However if all it does is moan and groan then believe this ....in 10 years China will enter the US market, and it will destroy GM. GM will not be able to out-incentive the Chinese, since the Chinese vehicles will be relatively cheaper. The only way GM can compete is by following what the Japanese and European companies plan to do ....beat the Chinese by offering greater value (again ...utility) and quality. Ford seems to have gotten the idea ....but GM is still floundering, and honestly I do not see how they are going to survive.

[Issaquahking]

All I can ask is when America becomes a servant service country who do they think they'll be serving, and how?

Reminds me of a song by Mike and the Mechanics....

Take the children and yourself
And hide out in the cellar
By now the fighting will be close at hand
Don't believe the church and state
And everything they tell you...

Real conservatives know that if anything goes far enough without a check and balance system, that things will eventually go ugly. Right down to the logic that a good capitalist will sell the rope that will hang him... as long as it turns a profit.

[wrathof59]

It is the FORD five-hendred, not GM, that I was referring to in my post, and they have shoddy workmanship.

IMO, the problem at GM and Ford runs alot deeper than cheap foreign parts, their sedans have been lackluster for 30 years.