Next Big ProblemÖ And Japanís, Too
Would you buy
a Chinese car?
automobile industry our guys, the Europeans and even the
Japanese are praying to the Motor Gods you wont want
to. Detroit is already reeling from high labor costs and declining
market share; the Japanese have their own problems including
the tsunamis aftermath (temporary) and (not so temporary)
the fact that for the most part theyve become like Detroit
in the sense that their cars are no longer high-value/low-cost but
as or even more expensive than the American stuff. Ditto the European
makes. Most are high dollar; few get high gas mileage.
as it exists today, may be about to face a perfect storm
a vortex of high (and rising) fuel costs, inflation, a weak economy
and high unemployment
tailor-made for El Cheapo Specials from
China (and India, too).
will range in price from about $7,000 (maybe less) for a small,
economy-oriented family sedan to around $18,000 for a mid-sized
crossover SUV. That would be about 30-50 percent less than the sticker
prices of equivalent in size/features American-Japanese-European
Automobile Co. says it hopes to sell as many as 250,000
of them in the United States within a few years from now, selling
them through a network of 250 dealerships. The company plans to
have a complete lineup of 18 separate models competing in every
category/niche with projected annual sales of more than 1
car pricing and volume may soon be coming to a dealership
A Chinese autoworker
earns the equivalent of about $2 per hour vs. $60 per hour,
on average, in wages and benefits earned by an American autoworker.
That alone gives Chery Auto (and other Chinese car companies, of
which there are at least six at present) a tremendous competitive
advantage shaving thousands off the cost of building a car
relative to what it would cost to do the same job in a U.S. plant.
(General Motors estimated, pre-bankruptcy, that its union/pension
obligations alone add about $1,500-$2,000 to the build cost
of every new vehicle and pointed to these add-on costs as
part of the reason it went bankrupt.)
But the real
advantage the Chinese car companies have is the absence or
near absence of cumbersome and expensive-to-comply with occupational
safety and health and environmental regulations in China. Regulatory
compliance costs boost the price of every U.S.-built car substantially
although these costs are hidden from the consumer and simply
folded in to the cars sticker price. The exact figure varies
depending on whom you ask, but the industry consensus is that keeping
Washington happy adds anywhere from 10-15 percent to the bottom
line cost of every new vehicle built in this country.
But in China,
its still very much like it was in the U.S. circa 1950
good times for industry, with environmental/worker safety rules
and regulations taking a back seat to the mission of stamping out
as many cars as possible as efficiently and inexpensively
true that Chinese-built cars, like any cars sold in the U.S., will
have to meet federal emissions (and crash-impact) standards, the
cost of such things as polluted air in Guangzhou are not reflected
in the sticker price of a Chinese-built car shipped to the United
States for ultimate purchase by an American consumer unlike
its U.S.-built counterpart.
analysts think these cost/price advantages will be offset by the
poor quality of Chinese-made cars relative to American, Japanese
and European vehicles. Some even dismiss Chinese-built cars as oriental
Yugos pointing out that the cars being built in China at
present have been found to have as many as 374 problems reported
per 100 vehicles vs. the current industry average of just 118 problems
per vehicle for name brand vehicles.
But while the
expected low quality of Chinas first generation of cars will
probably keep them on the periphery of the U.S. market for awhile,
its worth recalling the case of Hyundai. The once-mocked Korean
automaker is now a major player in several segments of the U.S.
market. Hyundais first-generation cars were also Pinto-esque,
but that changed very quickly. Indeed, almost overnight. Today,
Hyundai has some of the highest customer satisfaction ratings in
the business and its low cost/high value business model has
cut deeply into segments that were once owned by the
domestics and, even more tellingly, the Japanese.
which: The mainline Japanese automakers were also once dismissed
as purveyors of low-quality crap cars that most American buyers
would never consider. Im 44 and made in Japan
was synonymous with junk when I was a kid.
the incredible potential of Chinas automobile industry may
be whistling past the graveyard.
are as committed to penetrating the U.S. market as the Japanese
and Koreans were before them maybe even more so. And the
Chinese have those built-in advantages of far lower worker/regulatory
compliance costs to give them a leg up on the competitive ladder.
auto industry analyst Maryann Keller, The Chinese are probably
five or six years away from being able to sell a competent low-end
It may happen
a lot faster than that.
with permission from EricPetersAutos.com.
[send him mail] is an
automotive columnist and author of Automotive
Atrocities and Road Hogs (2011). Visit his
© 2011 Eric Peters
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