Thursday, June 29, 2006

Chinese car love

I tuned into ABC news radio this afternoon to hear a snippet on the Chinese car industry. By 2020 the Chinese market may be the biggest car market on earth – perhaps bigger than the US, with 18 million new vehicles per year and a fleet of 130 million vehicles in all. More models are now sold in China than in any market in the world including the US. Moreover, as China is increasingly the centre of world manufacturing, and car production is manufacturing, this is where car production as well as consumption will be concentrated. Chinese car production plants are already using robots in highly automated settings and sell a budget car for under $6,000 with a profit-margin per vehicle of about $16 per vehicle.

Last year The Economist set out the major commercial and environmental issues that kindled my interest in this industry. The following segments drawn from the Bangordaily set out things succinctly:

‘China, with its big city's broad boulevards suddenly jammed with cars, is plunging into the same love-hate automobile obsession that has long since absorbed the United States. As The Wall Street Journal reported recently, nearly 1,000 new cars are hitting the streets in Beijing every day, crowding a city already clogged with traffic and choked with pollution. The mayor complains that the flood of automobiles makes it hard to run the city. And local officials may ban private cars temporarily to improve air quality during the 2008 summer Olympic Games. Cars in China are already a curse and a blessing.

Aside from traffic jams and air turned blue by exhaust fumes, the country's automobile industry is a mainstay of its booming economic development. The
Journal reported that car sales were up 54% for this year's first quarter compared with last year. It said the Chinese auto market, the world's second largest, employs 1.7 million workers. At the current rate of increase, the 33 million vehicles on Chinese roads will surge to 130 million by 2020. As in many developing economies, owning a car has become a mark of success, widely achievable with higher wages and reduced car prices. A Chinese-made hatchback sells for $5,200. Consumer demand and the vital role of the automobile industry in the Chinese economy have left environmental considerations and mass transit largely in the lurch. Pollution restrictions and applications for a dozen new or expanded subway systems have been put on hold in deference to the automobile craze.

Does this sound familiar? Most Americans love their cars, often still preferring big SUVs despite record gasoline prices and rollover hazards. They put up with bumper-to-bumper morning and evening traffic in most big cities rather than turn to carpooling or mass transit for the sake of personal convenience and because the traffic burden has grown incrementally. Both countries will do well to mitigate their traffic problems by expanding rail service. And both must seize the pollution problem by improving exhaust control and limiting the use of high-sulfur fuels. They can see in each other a reflection of the consequences for not acting.China and the United States have a responsibility to harness their automobile industries to reduce the greenhouse gases that pollute the world's atmosphere and contribute to climate change. In their shared affection for the automobile, there is an opportunity to set
standards that will improve the health of the planet while still providing drivers in both countries all the traffic they can handle’.

The Chinese car industry is a remarkable development that will improve the quality of life for hundreds of millions of people although, this will be qualified by environmental concerns. Locally the development has major implications for the way we see the future of the Australian car industry which, to be blunt, looks dim. It also emphasises the urgency of developing non-fossil-fuel based car technologies and of dealing comprehensively with the global public good consequences of greenhouse gas emissions. If we don't do it, they won't and we should.


FXH said...

Somewhere in another article like that one I saw that the Chinese were planning to land a basic small automatic car power steer in Oz in the next 12 months for just under $10,000 new. They could land a manual without power steer here now under $8,000 apparently.

hc said...

Agree Francis, I cannot see how the Australian car industry - despite its past considerable recent gains - can survive. Maybe exporting design skills. But manufacturing for niche markets, nuh! I don't think so.

conrad said...

I used to work now and then in Beijing, and I think you might better rephrase it "a curse and a curse and a curse and curse and a blessing".

I think the Chinese would been have better off investing in other technology than cars due to the population size. It is in fact now much slower to get anywhere in places like Beijing than before cars, and thanks to the unimaginable airpollution (incuding to people who have lived in Bangkok!) you can't ride a bike or walk.

Surely the growth in the car industry must now trade-off with productivity in every other sector (including almost everything indirectly thanks to people being sick due to the smog).

Scott Wickstein said...

Even for a sub $6,000 car, $16 isn't much of a profit margin. Wonder how long they can keep that going?

hc said...

I should say that $16 was the manufacturer's claim so may not be reliable. But the market does seem astonishingly competitive.

jack said...

Well, of course, the Australian car industry is doomed and the Chinese, with their planned, command economy will do what they have to... As Richo put it, whatever it takes. The alleged profit margin of $16 per vehicle notwithstanding, it wouldn't matter if it was a loss of $16 per vehicle, or even $160. I mean, the Yanks are losing money on the vehicles they make, see below. It is all about market share and cruelling the industry elswhere so they can control the market.

Hey, where are the German cameras of yesteryear? Where are British motorcycles?

Not only is GMH doomed, GM is doomed, going backwards at $10 bil and counting see

The Koreans (pretend market economy) and the Japanese (zaibatsu, or pretend market economy) have seen to that.

Where is Australian clothing industry (thank you Jim Cairns)? Consumer electronics industry? Shipbuilding industry? Iron and steel industry? Whitegoods industry? Computer industry? Not to mention the call centres...

Currently, the Australian car "industry", apart from some Commodore models, the Verada (from components made elswhere) and the Falcon, assembles foreign-made cars from kit (CKD or complete knockdown kits) by numbers, like IKEA furniture. I wouldn't call it a proper industry really, would you?

After the current Commodore and Falcon run out, there will still be some ckd kit assembly but eventually, say, within a decade, there will be nothing.

Just as the Japanese foreign minister predicted in 1978, "you Austrarian, why you want to make things? You should just be quarry and mine and fatten up beef. Your worker no good, lazy all the time, get pay too much."

Smartcar Owner said...

nice article harry, hope you can contribute of ur editorials at ccf

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