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CAN CARS FULLY MADE IN CHINA COMPETE IN WORLDWIDE MARKET OR US?

By: Lynda ET

Let’s imagine that in 2010 you are driving a sophisticated car with a reliable safety as Western Safety standard and with the exterior and interior fashionable style. Then you are really aware of that the car is fully made-in China. You also meet a lot of similar car made-in China on the road with the driver proudly races the car enthusiastically. Wherever you travel abroad in advance countries, it is easy for you to meet the cars that fully made-in China.

It’s interesting news that within this 2 weeks New York Times has reported about Chinese automakers' plan to expand into the American market and how the Detroit automakers should have been taking the extra time of the Chinese automakers delayed plans for keeping exist competing with them while struggling in their existences as the automotive industry players.

The question is “Can Car Made in China compete in American Market or other advance countries?

Chinese automakers

Let’s take a look for a while the Chinese businesses generally.
It’s very easy to find any products made-in China with the very reasonable price compared to the same product made in other countries. I say the very reasonable price if comparing the quality from one to another.

Now, let’s see to the Chinese automakers.

There are competitive advantages of China to be superior in expanding their products into American and worldwide markets. There is no secret how the low wage of the skill and diligent workers in China, government's supports highly to China manufacturers and other industries, a new young generation to see the globalization enthusiastically, a very welcome for anything from Western technology and education to develop their country and some other supported environments, have supported Chinese businesses for expanding their businesses in advance countries and attracted more and more foreign companies to join venture with China.

The competitive advantages are also experienced by Chinese automakers. As reported in New York Times, October 18, 2006, there is not uncommon for $250 monthly wage for a skill and diligent worker to weld the steels to build a car by manually. Government highly supports in allocating the industrial sites which closest to deepwater ports. It means the high cutting-cost for transporting to export. The Chinese automakers have no worries about Unions by hiring People’s Liberation Army to improve discipline, and the trust of foreign companies to make a joint venture with China to manufacture cars and auto parts supply. The willingness of Chinese automakers is to welcome for global technology by using robots. They also welcome for global management improvement. Even though some of them like Geely (one of the biggest automakers whose plan to expand into US market) plant do as the more typical Chinese factory by using human. The automakers are also open minded to absorb what Global Market’s needs. They will not be stubborn to release the cars into the market so soon, but they made some delays for export target plan, which had decided.

Like Geely board members, Geely announced to export the cars into US as early as next year, after Geely surprised the Detroit automakers and other advance countries automakers by showing up in Auto Show in Detroit and Paris as well as Chery Automobile as the Geely’s rival to export a fully Chinese-made car into US next year. But now they announced to delay until 2009, 2010, and 2011. Meanwhile Chery has made delays twice from 2007 to 2008, and then again 2009. Those delays are made in terms of meeting Western Safety standard, after they found the cars made in China didn’t meet the Western Safety Standard, in US or in Europe. The exporter of Landwind New Vision sport utilities, the Dutch importer of the vehicles to Europe, failed the German testing and Chinese automakers. Chinese automakers have chosen to delay for a few years to meet Western Standards in safety regulations. The Chinese subcompact cars have fallen short of Western tastes and the name of Geely is unfamiliar.

It means that we just wait for them until they completely fulfill the Western market needs.

Detroit automakers, European automakers, and other big automakers from Japan and Korean

Now, what’s going on with Detroit automakers, European automakers and other big automakers such as Japanese and Korean automakers nowadays while reading the market situation?

Let’s take a look for a while again to American markets

The price of gas has risen higher and higher. It created the marketplace for a new preference for small, fuel-efficient vehicles.
American population with the newborn at the 4thweek of October came as the as the 300millionth American. It put US as the biggest market for expanding business. However it must be considerate to see whether the big population caused of the newborns or caused of more many immigrants became US citizen.
The decline of US dollars effected to decline US economy (I am not discussing US politic nowadays, but the fact for economic declination)

I hypothesized that the high price of gas, the low income status mostly in the biggest part of population US which is in immigrants and new immigrants compared to the high economy status in American-American, and the effect of the US economy decline have created the more demands for any thing that make efficiency economically, including for owning a fuel-efficient car. However the brand loyalty will remain playing the important role in the level of high-income customers, even in US or other countries. I predicted the situation will still keep on going in 2020 if the 2020 economy situation will remain like today or even worse.

How are the Detroit automakers?

In New York Times, October 24, 2006, Ford Motor Company has reported its worst financial results in more than 14 years. Ford has begun a restructuring plan, called the Way Forward. It means that 40,000 job cuts and a dozen or more plants will be closed through 2008. There is an interesting news from Ford and it surprised investors that they were expecting the fourth-quart performance to be worse than that in the third quarter in terms of seeking to enter the market with a new group of small, more fuel-efficient vehicles. Ford is seeking buyers for sale such as the British marques, Land Rover, and Jaguar, and even Ford has put a British maker of luxury cars, Aston Martin up for sale.

Chrysler, a division of Daimler Chrysler also reported that it had nearly 100,000 more unsold vehicles in the inventory. It’s overloaded and they have already overstated to read the level of demand of their vehicles. Another interesting news about Chrysler in New York Times, October 26, 2006 that it’s potentially Daimler will be minus Chrysler. Daimler with the brand loyalty and clear identity in its Mercedes and Chrysler with the S.U.V.s and pickups merged in 1998 and they earned some of the biggest profits in the industry on vehicles like the Jeep Grand Cherokee and the Dodge Ram pickup. But now, when $3 a gallon gas prices has sent buyers to more fuel-efficient vehicles.

G.M, though is still suffering lost, but it is a little bit better rather than Ford and Chrysler. There are some of G.M new products are doing well and expectations are high for the coming Saturn Aura sedan, Chevrolet Silverado pickup truck and three crossover vehicles. But it cannot be said that GM will still be fine, as GM still has to concern for the big outflows of cash.

How are Japanese and Korean automakers?

While Japanese automakers also have suffered some fallen profit, like Toyota, which had lagged behind the three Detroit companies in American sales. Honda Profit fell in the second-quarter profit loss on derivatives. However Honda’s sales in North America rose with its fuel-efficient models. The rose is also enjoyed in Europe and Asia.

I have not found the Korean has a big concern, but I can hypothesize that Korean is still counted as a newcomer in automakers. It has been running since a few years ago and still trying to reach the bigger market in the level of mid and low-income customers. I think they are still fine as long as they are consistent for their products that mostly are produced in the class of not more than 2500 CC.

What are the possibilities, which might be happened in the marketplace?

Renault-Nissan will potentially buy out Chrysler rather than Chinese automaker. For Renault-Nissan under Carlos Ghosn that may know well how to go into the market for the unsold inventories, but without Carlos Ghosn, it will be a question mark whether Renault-Nissan can sell the unsold inventories. Meanwhile for Chinese automakers such as Geely and Chery Automobile will be more potential to keep running their plans to expand American markets and other markets in which fuel-efficiency demands are big than buying out Chrysler. Another things that more Chinese automotive business people prefer to manufacture auto part supply or be dealers. While Chrysler will have no chance to run the business in fue-efficient vehicles without Daimler as Chrysler doesn't know well about fuel-efficient vehicles production. In addition, Chrysler with its own problem in the unsold inventories might be sold in the very low price, in terms of making the breakeven point. However, it will take time longer, because the unsold inventories are in the high-fuel consumptive vehicles. If the gas price fall down in a miracle situation, Chrysler will have a potential to get its profit back in selling their high-fuel vehicles.

The other Detroit automakers will keep falling down; as they don’t have any competitive advantages that drive them to remain exist in their products, except, like Ford’s expectation to enter the new market in fuel-efficiency vehicles and GM that's still remain with their new products and compete with other automakers in fuel-efficiency vehicles.

European luxury automakers will still remain exist if they keep playing the brand loyalty as long as they are still consistent for not making a mass product. Because the marketplace for this has been created. Their own existing customers will not change their value while choosing the products and the pride to own the luxury brands just because of the risen gas price.

Like European automakers, though profit fallen to Japanese automakers, but Japanese automakers has started longer time to enter the automotive industry and have well knowledge to read potential markets. In addition, there are some of competitive advantages of Japanese automakers, which are almost similar with Chinese automakers, especially for government's supports and high skill and diligent worker, but not low wage. The more competitive advantage of Japanese that she has entered the market firstly and has created a strong brand awareness in the worldwide market for the Japanese vehicles brand, either in quality or in a reasonable price. In addition, they have known well how to read the demand and how to remain exist in the market as they are the first player.

For Korean automakers, it will still take long journey to compete with Japanese. Chinese automakers might pass Korean automakers as long as Chinese automakers run consistently their plan for expanding to US markets. If cars fully made-in-China can be accepted in US market, it will be the big public relation to worldwide market for the awareness of Chinese brand.

Return to the question: “Can Car Made in China compete in American Market or other advance countries?”

I think it’s still long journey for China competing in American Market or other advance countries as long as Japanese keep playing the role as the first leader in the fuel-efficiency vehicles. With the reasonable price, American market will still prefer to Japanese vehicles to other vehicles from China, because the American market (and also worldwide market) have been educated since long time ago for the Japanese quality of a product. As long as the Chinese automakers put the price in bottom price or lower than others, it might be they still can get some market shares bigger than other automakers. It will take a long journey to create a worldwide brand image for the high quality product made in China, especially for a vehicle. Because this is about ‘A VERY SAFETY DEMAND’ for a customer buying a car rather than other product, wherever the customer is, either in US, other advance country, even in developing countries. However, it might be a potential for Chinese automakers to get more bigger market for vehicles which not fully made-in-China. It means that Chinese automakers should still remain to join venture with Japanese automakers or European luxury automakers. But I think it will be ridiculous if European luxury automakers let Chinese automakers to put their Chinese-brand while join venturing with the European luxury automakers. It might be happened if the European luxury automakers open their factory closest to their markets in China, especially for automotive parts-supply, but all will be fully under their control.

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