When the word "China" is heard, many U.S. manufacturers begin to tremble. Have you noticed "Made in China" seems to appear on most everything?
A good friend was recently planning a trip to China that included visiting an American family residing there. Her intent was to take along a few toys for the children. A problem developed: She had difficulty locating any toys that were not made in China.
Now the trembling is beginning to be felt in the automotive industry as Chinese carmakers are making plans to export to the United States as early as 2007. Malcolm Bricklin, perhaps best known as the Yugo importer, has been chosen by the Chery Automobile Co. as its U.S. distributor.
General Motors Corp. has noticed. It has already protested the name "Chery" for a passenger car, saying it too closely resembles the vaunted Chevy nameplate.
The Chery company, as with many of its Chinese competitors, is less than a decade old, founded in 1997. The firm sold 97,000 cars in 2003. Sales figures for 2004 were not available.
It appears to be an ambitious project for a company less than 10 years old to expect to export cars meeting tough U.S. safety and environmental standards. The company replies that it has a group of car manufacturing experts hired to develop power trains and other technology and can meet the deadline. Chery has enlisted the aid of Pininfarina of Italy, for example, to assist in designing cars for export.
The Chinese auto industry has exploded in the past decade, although the market has cooled in the past year. Automotive News Europe has just published a "Guide to China's Auto Market." James R. Crate, co-editor of the guide, says, "Most analysts and industry executives expect the market this year to be up no more than 10 to 12 percent over 2004."
Oh, how most countries would love to have a 10-12 percent growth, but that is sort of a downer in China. "It's not enough to support the industry's ambitions in China, where automakers have spent some $15 billion to date to build new plants and dealer networks," Crate says.
"Nearly 50 domestic and foreign automakers are competing for a piece of what, essentially, still is a small market. Not surprisingly, the competition has turned into a knife fight. ? Automakers are slashing prices across the board in a bid to keep showrooms open," writes Crate. "Even BMW, a marque considered to have the auto industry's most unassailable price premium, cut prices by up to $12,000 after its sales in China tanked 16 percent in 2004."
"The price war between automakers last year cut the overall profit margin of the industry," says Jiang Yuan, an official with China's National Bureau of Statistics. "The price wars will continue until those brands that are less competitive are driven out."
George Spaulding is a retired General Motors executive and executive-in-residence emeritus at the School of Business and Economics at the College of Charleston.