Chinese Carmakers Pushing for Exports

by Stuart Burns on November 3, 2011

Style:    Category: Automotive, Global Trade

It’s a refreshing change to report that one industry sector is doing rather well in the US and rather poorly relatively speaking in China. Not that we wish the Chinese ill, but it becomes a bit wearing to hear month after month how one industry or another is about to be overtaken by rampant Chinese expansion; so when the US car industry reports modest sales growth, it should be a source of some encouragement.

According to figures in an FT article, US light-vehicle sales totaled 13.2 million to 13.3 million units last month, slightly above September and up from 12.3 million in October 2010. US carmakers believe they are benefiting from a lot of pent-up replacement demand helping GM post a 1.9 percent increase over a year earlier, Ford a 6 percent increase and Chrysler 27 percent!

Wanted: Chinese Car Sales

Meanwhile, falling sales growth at home is putting Chinese carmakers under pressure to try and export to maintain momentum. Even Western OEMs are reported to be doing better than Chinese manufacturers in their local market. Credit tightening and lack of any stimulus incentives are depressing car sales in China, encouraging firms to look to export markets for growth. But in spite of Fiat’s Sergio Marchionne warning US carmakers that China is coming, the reality is any carmaker that can’t even compete on quality with overseas OEMs in its home market is going to struggle to carve out a sizable export market.

Witness US manufacturers losing out to Japanese manufacturers in the 1990s. Understandably, Chinese carmakers have focused on cost-conscious, brand-blind emerging markets like Latin America, the Middle East and Russia. Even so, market share is minuscule: after an 80 percent increase in exports, China’s leader Chery Autos, combined with JAC and Lifan, between them only have 1.85 percent of the rapidly growing Brazilian market. On the face of it, Brazil should be ideal for Chinese models, stuffed as they are with extras yet offered at a slight discount to Western brands. But even Brazil’s emerging middle class is only gradually accepting Chinese-made cars, a trend that risks being choked off before it takes hold by a Brazilian tax increase. From December, the government will increase a tax on cars — those with less than 65-percent Brazilian, Mexican or regional content — by up to 30 percent, in a move reported to be aimed at Asian imports.

Stateside Viewpoints

Sergio Marchionne is quoted as saying at a Michigan auto industry conference in August, “Even assuming China were to export only 10% of what it produces which some analysts forecast will be 30 million vehicles by 2015 and 40 million by 2020 “the risk we face in our home markets is enormous.

Yes, taking those numbers alone it would be; but China’s growth in car production is slowing — they probably won’t be making 30 million cars by 2015, let alone 40 million by 2020. Nor will they have made the leaps and bounds necessary to produce vehicles of comparable quality to Western brands. At the same time, rising inflation and a gradually appreciating currency will make manufacturing in China a less attractive proposition than it was previously.

Western carmakers should be wary of China; just as Japanese, Korean and even Malaysian carmakers have made their mark and reduced the available market for Western manufacturers, so will the Chinese. But rising affluence around the world, the driving force behind rising car ownership, also brings rising expectations and Western carmakers have shown a remarkable ability to continue to innovate, improve quality and reduce costs, which has kept them in the game.

–Stuart Burns

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