While the U.S. auto industry is busy dealing with the dollar-yen exchange rate, contract negotiations with the UAW, rising fuel prices, falling sales, and a "product so mediocre they need to bribe customers with incentives to buy American," (quote from a Forbes article Detroit to Japan: Strengthen the Yen), the latest news from China shows that the automotive industry there is progressing at lightning speed.
A sampling of news items about the China's automotive industry includes the following headlines: China"s auto industry takes on the world; Daimler launches US$300m joint venture in Fujian; and China: Second Dongfeng Peugeot facility to go on stream in 2009—four new models due. And this is just the nose of the hood ornament.
The Council on Foreign Relations, a nonpartisan resource for information and analysis, recently published an overview of China's Motor Vehicle and Aerospace Industries:
"China's auto sector, once an industry backwater, has emerged as a major global player. According to data from the International Organization for Motor Vehicle Manufacturers (OICA), a trade association, China was the world's third-largest producer of cars in 2006, behind Japan and Germany, and also the third-largest producer of "motor vehicles" (which includes commercial vehicles like trucks and tractors), behind Japan and the United States. Chinese production accounted for nearly 7.2 million motor vehicles, over one-tenth of the world's total production. These production levels reflect 25.9 percent growth from 2005 production levels—U.S. production, by contrast, shrunk by 6 percent. The shifting contours of the global auto industry are explored in depth in this backgrounder.
"Chinese auto exports, though they remain modest in a global context, are also growing at heady rates. In 2006, China exported (Xinhua) 340,000 automobiles, versus 173,000 in 2005 and 78,000 in 2004. China's Vice Minister of Commerce Wei Jianguo says the country aims to lift its yearly export totals to $120 billion, or 10 percent of the world's total trading volume, in 10 years' time. Marina Whitman, a professor at the University of Michigan's Ross School of Business and a former executive at General Motors, says the vast majority of Chinese auto exports are unlikely to go to Europe or the United States, but rather to countries nearer to China geographically.
"Notwithstanding China's goals to increase its auto exports, the country's domestic market remains the predominant focus of Chinese manufacturers. Domestic demand for automobiles has jumped dramatically since China's accession into the World Trade Organization, including a 23.7 percent rise in auto ownership between 2005 and 2006. These numbers vault China past Japan as the world"s second-leading consumer of automobiles, behind only the United States (Xinhua). The Economist notes that China's government has accelerated this trend by pouring billions of dollars into improving the country's highway network, which is currently the world's third most extensive.
"The rapid development of China's auto industry poses questions for the more established auto manufacturers in East Asia, including Japan and South Korea. According to OICA data, as of 2006, Japan's total auto production remained at least 50 percent greater than China's, though the same data shows China having nearly doubled South Korea's production levels (Korea remains the world"s fifth-largest producer of motor vehicles, producing over 3.8 million per year). China's emergence poses a substantial challenge for these regional competitors. It also poses potential problems for multinational firms, particularly U.S. carmakers like Detroit's Big Three—General Motors (GM), Ford, and Chrysler—which face growing questions about their global competitiveness. U.S. firms already face substantial threats from Japan's Toyota, which in 2007 surpassed GM as the world's largest car company; the idea that China could develop a Toyota-like market leader strikes fear in U.S. and European producers. Yet Whitman notes the effect of China's rise on international manufacturers might be mitigated by market segmentation. At least in the short term, she says China is likely to focus its export activities on countries 'closer to its income level.'"
A news item released today further attests to China"s automotive industry growth. CCID Consulting reported: "The Chinese automobile industry has maintained a strong development growth over recent years. It is forecast that the output will reach 10 million units and China will become the second largest production country by 2010, with the output reaching 20 million units by 2020. Such forecasts see China becoming the largest production country by 2020.
"According to the international and generally recognized accounting value, every $1 that the whole vehicle industry produces will bring $0.4 for the parts industry. Therefore the prosperous development of China's automobile industry will help drive the parts industry's rapid growth.
"More and more parts manufacturers are entering into the Chinese market. These include Bosch, Delphi, Denso, AISIN, FUJITSU, Alpine, and VALEO. At present, 70 percent of the top 100 automotive parts manufactures have branches in China, with over 1,200 international automotive parts enterprises already here. The sales revenue of China's automotive parts reached 403.5 billion Yuan in 2006, and the market share of foreign capital parts accounts for more than 75 percent of the total market."
"Why? Though the bill doesn't directly mention Beijing, it seems directly aimed at China. And exports to that country are one bright spot for the Big Three. In fact, GM expects to sell more than 1 million units there this year, its chief economist, Mustafa Mohatarem, says."
If you can't beat 'em, sell 'em lots of cars, while you can.