Get Ready Detroit - Here Comes China

Vehicle sales in China are soaring, reaching just under a 9 million annual rate in January, second only to the United States. China's auto industry will soon be ready, willing and able to produce for exports as well as for domestic consumption. Let's hope Detroit is getting ready.

First, some perspective. Vehicle sales in China in 2007 were 8.8 million, compared to under 3 million in 2002. U.S. car sales are about 16 million. China's best-in-the-world economic growth record means many more people can afford a car. After food and health care, better transportation is high up on most Chinese consumers' lists. Any car that even lurches along--but keeps the passengers out of the sun and the rain--is a great step up from two-wheel transportation.

As long as China's economy continues to grow at about a 10% rate, demand for cars is likely to surge in the 20% range. The entrepreneurial and ambitious people of China want to work, earn and consume. No surprise here. My own estimate is that China will be producing a net 17 million vehicles by 2012--2 million for export, 16 million for domestic consumption and 1 million imports-- easily the largest if not the most sophisticated market in the world.

Of those 8.8 million vehicle sales in 2007, about 10% were imports. The cars that China imports are largely mid- to high-end cars. China now exports almost exclusively low-end vehicles to other less-developed countries. China is just getting started producing higher-end cars. It takes time to develop the sensitivity to quality control that high-end products require, but they are getting there.

Understand this. The auto industry is regarded by Beijing as "strategically vital." As a matter of national economic strategy, China is not about to allow its car market to become dominated by foreign interests. They want to remain masters of their own house. I expect foreign firms to continue to be limited to ownership of 50% or less in China's domestic car companies.

The Big Three in Detroit and all major global car companies (Toyota (nyse: TM - news - people ), Honda (nyse: HMC - news - people ), Nissan (nasdaq: NSANY - news - people ), Hyundai, Kia, Citroen, Peugeot (other-otc: PEUGY.PK - news - people ), and Suzuki (other-otc: SZKMF.PK - news - people )) already have joint ventures with the major Chinese car companies, producing either for the Chinese domestic market or for export to other poorer countries.

Global tie-ups bring in better technology and much needed manufacturing talent. And, global partnerships bring in foreign marketing, distribution and service networks, essential for China to enter the U.S., European or Japanese markets. Don't be fooled. There is nothing so complicated about producing cars that China would not be able to do it. It fits perfectly with China's "up the value chain" manufacturing strategy. We will be buying 2 million cars a year from China by 2018.

I expect General Motors (nyse: GM - news - people ), Ford and Chrysler--and indeed all major global car companies--to be producing in China for export in the next few years. For exports to the U.S. and other rich-nation markets, production in China likely will start at the low end of the price-quality scale, moving up over time. This was exactly what happened with Japan, Germany and Korea producing for the American market over the last 50 years.

America is the grand prize in the emerging Chinese export market drive. It represents the beginning of the end game in global manufacturing--production of vehicles by the lowest cost manufacturer in the world (China) for the biggest and most discriminating market in the world (the U.S.)--using processes and technology variously modeled after and "appropriated" from the West. What China will need is American links to get access to sales, distribution and service in America. When the U.S. Big Three become comfortable with the Chinese product, they will sign on, desperately needing a new price- and quality-competitive offering. Remember, all vehicles for export will be foreign firm and Chinese joint venture products.

In China, quality considerations, crash-test results and emission standards have been domestic nonfactors. But they are crucial for the export markets. Safety and emission standards are in the receiving country's domain. China understands that they must measure up here or will be shut out, literally and figuratively, from the developed-world markets.

As we all know, Detroit continues to struggle mightily with losses year after year, labor costs that are prohibitive on a global scale, eroding market share and big-time job cuts. I see no end in sight to this process. What I do see is more announcements by Detroit's automakers of U.S.-China joint production ventures. They likely will entail production in China for the domestic market as well as production for a host of export markets--including the U.S.

With the U.S. in recession (at least I think so), the prospect of cars coming into the U.S. from China will be an eye-opener. I just can't imagine political Washington in this election year doing anything other than talking very tough, standing up for what they will describe as the aggrieved American workers and promising new legislation to put China back in her place. China likely will lie low between now and election day this November, not wanting to stir the pot too much. But there is a real fight brewing in 2009 when the new U.S. president takes office.

Donald H. Straszheim is vice chairman of Roth Capital Partners in Los Angeles, former global chief economist at Merrill Lynch, a visiting scholar at the University of California-Los Angeles Anderson School of Management and a longtime China specialist. He previously served as president of the Milken Institute and joined Roth in 2006 to spearhead the firm's China initiatives.

http://www.forbes.com/home_asia/opin...traszheim.html

 

The first Chinese-built (Chery) cars were supposed to start arriving here in the U.S. late year....November or so. Malcolm Bricklin had supposedly cut a deal.

We're still waiting.........and, yes, a Chery is on my review list. I'm anxious to see the Chinese cars and gauge their build quality and driving dynamics.

 

give the chinese 10 years or so once they learn how to make a car, they are the next biggest threat

 

Hehe, as the Chinese keep buying up all these cars, imagine the cost of gasoline in the near future?

 

10 years for the Chinese? We'll see. It took the Koreans about 15 years, here in America, to get car-building right. The 80's vintage Hyundais were junk...after 2000 or so they became virtually the equals of Toyota and Honda.

 

They already have too many cars there.
Once they stop copying every other manufacture's tech and styling, develop &improve the cars by themself, and I will pay respect then.
Econmy is going really strong over there.

Chery is not a well built car, it lacks of a lot of things ( I drove them, seems them, sit in them a lot of times), but if the price is under 5000, they should sell.

 

Where did you get the chance to drive one...in China?

Rumor is that when they get here, they will start around $6900.

 

In China, they are everywhere over there.
My friend has 3 Chery as company car and I borrowed one.

 

Haha, I wish someone in my family had one there. Too bad the subway in Hong Kong is so efficient. The only cars my family have there are Mercedes so I can't really drive that

China will stop dead if oil dies right now. As well as the rest of the world somewhat...

 

I wonder if the oil reserve in the earth could support one more extravagant China besides U.S. and other developed countries for long......

 

I'm betting on even less time given the number of co-mass produced vehicles in China already.

 

Why is everyone thinking that China is going to take 10 years?

Here's their latest effort -







Anything they can't copy, they hire foreign consultants and experts. It'll take them probably half as long as Hyundai did to field a half decent product in the US market. However, it remains to be seen if the American buying public buys any of these cars.

If the American market is receptive, I wonder what that will do to our existing $1.4 trillion trade deficit with China. Oh nevermind, I'll leave that to our sterling leaders.

 

that's the reason I don't respect Chinese manufacture, they copy copy copy!!!
They can't copy the exact thing, they will trick it and do it again!

But the thing is, they only copy the looks, the built quailty and techonology is at least 5-10 years behind.

Can you image 2003 VW Santana 2000 still has carburatur in it?? I knew, I was driving one and the car died on the road, when I open the hood, I went what the *&^*???

 

Aren't those Korean plates??

 

Just curious, what kind of beverages do they expect to be used in the cupholders? It looks like the dashboard protrudes out over the cupholders, limiting the height of the beverage to be placed there.

Also, it looks like a Q45.