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Sunday, March 12, 2006

The Invisible Hand Pushes the Auto Industry

In order to gain a competitive advantage, or at least not lose ground, U.S. automakers are transferring the latest automaking technology to new factories in China "increasing the pressure on G.M., Ford and other industry giants, which are already losing sales and market share to foreign rivals":

Thanks to Detroit, China Is Poised to Lead, by Keith Bradsher, NY Times: Volkswagen and other carmakers used to prosper by sending outdated factory equipment to China to produce older models no longer salable in the West. But competition has become so fierce here that Honda is about to introduce its latest version of the Civic only several months after it went on sale in Europe, Japan and the United States. Toyota, meanwhile, is assembling its Prius gasoline-electric sedan only in Japan and China.

When Ford Motor opened its first production line here in western China just three years ago, it used a layout copied from a Ford factory in the Philippines to produce 20,000 sedans a year ... But this winter, Ford opened a second production line next door that is practically identical to one of its most advanced factories, the Saarlouis operation in southwestern Germany. The new line produces the Focus, the same small car it builds in Germany (but different from the Focus sold in the United States). And with continuing improvements to the first line, it will bring total capacity here to 200,000 cars a year by June.

The Chinese managers here are not even satisfied with that. "I want to learn from Germany and then improve on it," said Li Jianping, the factory's vice director of manufacturing. ... One requirement for a country to become an automobile exporter is to develop a highly competitive domestic market that demands excellent quality and efficiency, and China has managed to create just such a market.

American and European carmakers, including Ford, General Motors, DaimlerChrysler and Volkswagen, as well as Toyota, Honda and Nissan of Japan are introducing their best technology to their plants in China, and not only to compete against one another. They also face rapidly growing competition in the Chinese market from purely local companies like Geely, Chery and Lifan.

These indigenous Chinese automakers captured 28.7 percent of the market in January, the first time in many years that Chinese brands have been pre-eminent — ahead of brands from Japan (27.8 percent), Europe (19 percent), the United States (14 percent) and South Korea (10.3 percent)... The multinationals "really have to bring their latest models,"...

In the race to be No. 1 in China, the world's fastest-growing car market, multinationals from the United States, Japan and Europe are falling over one another to share their latest designs, technology and manufacturing expertise with Chinese partners. But industry experts say that the sharing has helped China prepare to become a major car exporter within four years, increasing the pressure on G.M., Ford and other industry giants, which are already losing sales and market share to foreign rivals.

Few auto executives now doubt that the successful Chinese companies that emerge from the free-for-all in their home country will be ready to tackle world markets. "I've seen the Chinese vehicles in China from various, various brands, and I've said it's a threat that will come to the U.S., I think, by the end of the decade," said Thomas W. LaSorda, Chrysler's chief executive...

Wages of less than $200 a month remain a big advantage for China, but it is developing another. Domestic and foreign automakers are starting with clean slates to build new operations, using efficient approaches and advanced management methods. It is similar to the way German and Japanese companies built new and more efficient factories starting in the 1980's, mostly in the American South, helping them to leap beyond Detroit's expertise...

The risk for the multinationals is that their inventions may be turned against them. ... G.M., Ford, Volkswagen and other multinationals continue to work with Chinese partners because the government here requires them to do so. Foreign companies must assemble cars in 50-50 joint ventures with local partners. Honda alone has a 60 percent stake in a factory: a plant in Guangzhou that makes cars only for export.

Chinese automakers are also buying modern technology and design themselves. Chery has hired some of the best-known Italian auto design firms to spruce up its cars. When the MG Rover Group of Britain entered bankruptcy proceedings last year, the Nanjing Automobile Group outbid Shanghai Automotive to take control of Rover and its fairly modern engine-producing subsidiary, Powertrain Ltd., and move it to China...

    Posted by on Sunday, March 12, 2006 at 12:30 AM in China, Economics | Permalink  TrackBack (0)  Comments (8)


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