As much as U.S. automakers, especially GM, rely on China to bolster their global sales numbers and to supply cheap parts, Detroit is scared excrementless that the Chinese may apply the Western technology which had been exported to their shores, and sell cheap cars in the U.S. So far, it hasn’t happened. But it’s happening in America’s underbelly and NAFTA partner Mexico. “FAW Group Corp., one of China’s three largest domestic auto manufacturers, has begun selling new cars for as little as $6,550 in Mexico in what is believed to be the first foray by a Chinese auto-maker into North America,” Canada’s Financial Post reports. This being a Canadian paper, they are probably talking Canadian dollars, so in real money, it would be $5550. Or more like $4999. Scary.
A boatload of about 6,000 FAW cars have been brought to Mexico by Grupo Salinas, a specialty retailer. “They’re not all sold,” company spokesman Daniel McCosh said. “The higher-end and the lower-end vehicles are moving better than the mid-priced models.” That Mexican beachhead is troubling news for Detroit.
Small, cheap cars are suddenly big in the US. “Small-car sales doubled during the first half of the year as gas topped $4 a gallon. By the end of November, sales levels had tumbled 63 percent from the peak. Even with the drop, the segment is holding up better than others because overall vehicle sales are so weak,” reported ABC News. Amazed even Ford Motor analyst George Pipas: “It’s surprising.” .
China’s central government, which controls FAW, has been pushing the export of Chinese-made vehicles. A push they need, because Chinese exports are going nowhere. China’s auto exports fell 46.5 percent in November compared to the same month last year, Gasgoo says, citing data from the China Association of Automobile Manufacturers. A scant 35,800 cars were exported from China.
Foreign “demand is quite unstable,” said David Zhao, a Toronto-based research analyst at Frost & Sullivan’s Automotive Practice. “FAW and other Chinese automakers are still implementing their globalization plans. But since the current financial crisis hit, their plan might be adjusted. For the moment, they still want to stay within the Mexico market. They want to accumulate experience.” They are building more than just confidence. FAW is building a car assembly plant in Mexico.
http://www.fawmexico.com/
It seems the range is $5,548 to $9,203.
And Mahindra getting a presence in Latin America also:
http://www.mahindraautoworld.com/global_network.aspx?map=1®ion=3
Tata is making inroads in Europe:
http://www.tatacarsworldwide.com/products/index.asp
Is the rumor that the Chinese cannot design anything and that their engineers are useless true or do you thing they might actually be a development powerhouse sometime soon?
How easy do you think it will be for the Chinese to kick out their joint venture partners, taking their manufacturing and distribution assets?
I’ve heard that a lot of US used cars taken on trade-in end up in Mexico. I wonder if the cheap Chinese cars in Mexico will impact the US used car market and new car dealers?
At today’s exchange rate, $5500 would be about right, though about 10 seconds of surfing would have told you that the CAD has been hovering at about $0.80-$0.85 USD for about a month, making anything with in a recent range of about $5250-$5550 USD reasonable. Where the $4999 comment came from I’m not sure, considering that an exchange rate alone a car’s retail price does not make, but the “real money” comment is simply immature.
It wasn’t long ago that the CAD was trading above the USD, and hovered around parity for about a year. In addition, parts of the world have been leaning towards the EURO in recent times as the global currency standard, especially considering the deepening economic troubles in the US. I don’t mind a bit of international teasing, and can take a good natured joke at my country’s expense (believe me, we get a kick out of teasing back), but for the US to be referring to another nations currency as “not real” is ignorant in todays global economic climate. A comment like that might have held comedic water 10 years ago, but not anymore. Face it, the almightly greenback isn’t the only “real money” anymore, and to read an article that proclaims so these days is dissapointing.
When Japan came to US in the 60s the yen was 360
to 1 and a Datsun cost 1995.
Now the Chinese are following. This is not only disturbing for Detroit. The Germans and Japanese better be paying attention as well.
Also, how much stolen IP is in these?
Were they designed with real Pro-E licenses or stolen software off the street?
Is the rumor that the Chinese cannot design anything and that their engineers are useless true or do you thing they might actually be a development powerhouse sometime soon?
I was with a Japanese company a couple of decades ago when they were having an internal debate about what to sell to the Koreans.
At first they only did assembly in Korea.
Then they sold them the assembly units to use in their own (Korean companies).
Then they started to sell the design information so the Koreans could build their own assembly equipment.
Some wanted not to sell the technological information. The winning opinion was that “If we don’t sell it to them, someone else will, so we might as will make some money out of it”.
Today, of course, the Koreans aren’t buying -anything technological- from Japan; they’re developing their own designs from the blank paper point.
This is the same curve that manufacturing is following in China. It will be some years yet but not a lot before the Chinese become technologically independent.
@no_slushbox: I’m old enough to have heard the same stories about Japanese engineers and Korean engineers. I live in China and I watch it change. It is breathtaking. They will catch up much faster than the Japanese or Koreans. They have spacewalking astronauts. The idea that the Chinese will be the next ones to set foot on the moon drives people bonkers.
Bertel Schmitt:
Yeah, I definitely remember those claims about Japan also (the WWII cartoons making fun of Japanese quality are particularly entertaining); I guess the question isn’t will they get there, but will India beat them.
The perception that usually gets presented is that China has cheap labor but Indian scientists and engineers are much better. I tend to root for India as a democracy, but, possibly to India’s disadvantage, it’s harder to crack the eggs when they can vote.
What I’m more curious about from a inside perspective is, do you think the joint-venture partners are going to get thrown out on their asses or do you think they are actually establishing some kind of valuable permanent presence?
mcs, as a Houston resident I can tell you that most any car more than six or seven years old around here ends up in Mexico. On 59 South on weekend mornings you’ll see caravans of pickups towing other pickups or SUV’s down to their new homes.
To damn a car with faint praise in Texas, say “wow, in some Central American cities, that would be the mayor’s car.”
Just curious, what are the rules on driving a car into the US from Mexico or Canada that does not meet US safety/emissions standards? Are particular cars banned from making short tourist-type visits?
tech98:
http://www.nhtsa.dot.gov/CARS/RULES/IMPORT/TempInfo.html
The are some very cool European market only diplomats’ cars driving around, and I would see a lot of Mexican market only cars when I lived in San Diego.
The idea that the Chinese will be the next ones to set foot on the moon drives people bonkers.
Why should it drive anyone bonkers? China is a trading partner, a rival for global influence, and a potential military threat. The fact that they may yet land a man on the moon now 40 years from Apollo 11, shows both how far China has come technologically and how they are still trying to catch up with the West. I’m much more concerned about the geopolitical implications of China building a blue water navy than I am about them putting a man on the moon. Or a Chinese car in Mexico. FAW isn’t the first Chinese car company to look at Mexico as a foothold in the North American market. I’m pretty sure that CHAMCO, the now bankrupt venture to import pickups and SUVs made by Hebei Zhongxing, said their first sales would be in Mexico.
I’m old enough to remember when Germany was a low cost manufacturer, before Japan. In the 1950s, Germany was still rebuilding after the thousand year Reich lasted barely a dozen. The Beetle may have been a masterpiece, but it was also cheap. The US came out of WWII more of an industrial power than ever. Japanese and European industries were devastated. Soichiro Honda put an engine on a bicycle, and Europe had its microcars like the Isetta and Messerschmidt. Mercedes was using prewar designs well into the 1950s. Things have changed in Japan and Germany a bit since then. As things develop in China, wages will rise, as they already have risen along the coast. I remember reading over a year ago about a Shanghai based automotive vendor moving to Mongolia in search of lower wages. Just like in Japan and Germany before it, China will eventually no longer be a low cost producer. Eastern Europe already gets some business that might otherwise have gone to China. India is coming up fast, though we’ll see how it weathers the current worldwide recession. Before the financial crisis India’s rapid growth was creating inflationary pressure, so wages there have also been on a rising trend. With the cost of machinery being pretty much equal to manufacturers worldwide, and with human labor being a relatively small part of the cost of building things low labor cost countries won’t have a permanent advantage.
It would be nice, though, if the US learned a lesson from the Chinese. The Chinese know the value of highly skilled designers and engineers. If General Motors does get liquidated, I would expect a Chinese (or Indian) automaker to try to buy GM’s Tech Center in Warren and operate it intact.
(the WWII cartoons making fun of Japanese quality are particularly entertaining)
Could you provide some links to such cartoons? As far as I know, “Made In Japan” became synonymous with cheaply made goods in the 1950s and early 1960s. During WWII the US had a pretty good idea of the engineering capabilities of the Japanese. The Mitsubishi Zero was a high performance aircraft but it had no armor for the pilot, the most expensive component of the plane. US aircraft may have had a narrower performance envelope, but they were more survivable.
I am pretty sure China will not follow Korea or Japan in becoming technical powerhouse due to its demographics.
China has been growing fast but they need to grow 6-7% just to stand still, meaning to absorb the villagers coming to cities to better their life and there is still hundreds of millions of them barely surviving in the countryside while hearing about the good life in the cities.
But China has only about a decade or 2 left before its populations starts to gray rapidly due to its 1 child policy taking down the industrial production, engineering brainpower and entrepreneurial spirit with it.
China is once again splitting into class society with a few being billionaires, millions or even tens of millions achieving a form of middle class existence but hundreds of millions still just aspiring to the same thing. If their aspirations are denied another social upheaval may be coming.
Ronnie Schreiber:
A Japanese ship easily falls apart, and then a piece of wreckage mocks its disintegration, saying “Made in Japan”.
I think there are some similar ones.
The cartoons obviously were intended to build American morale and confidence, not accurately depict the US government’s internal knowledge of Japanese capabilities.
By entertaining I meant interesting, to see how quickly perceptions can change.
And if anyone is offended by the cartoon, I’m sure the Japanese had propaganda that was even harsher, they did start the war, and here is something to put it in historic perspective: http://en.wikipedia.org/wiki/Nanking_Massacre .
I live in Mexico and would be happy to do a review of one of these bad boys when it makes its way into our state of Sonora…
There are a lot of brand new econoboxes of yesteryear roaming throughout our 31 states.
They still make the 1991 Nissan Sentra brand new here. Quote from it Wikipedia page:
“it is the same basic car only with minor cosmetic changes and mechanical downgrades to make it cheaper, such as non-power steering, downgraded interior trim, a downgraded braking system, and a mechanical clutch instead of a hydraulic one. More recent models have received a Renault-built hydraulic clutch. Its affordable price made it popular among local taxi drivers.
It is expected to last in production until summer 2009”
I’d love to see this in a sales brochure “downgraded braking system”
I was in Lima, Peru last month and Chinese car brands were just beginning to sell there. American cars are incredible rare in Peru- probably under 5% market share. The vast majority of the cars were Japanese- Toyota alone seems to have 50% or more market share, but the Europeans seem to do okay too.
Ah yes, the Nissan Tsuru, the old Sentra. You see some of them running around the Rio Grande Valley here in Texas, driven by people who come across the border to shop. We see lots of other interesting cars, like the Ford EcoSport and Nissan X-Trail mini SUVs, plus some Fiats, SEATs, etc.
I wish the EcoSport and X-Trail were available here in the U.S., as I think they would sell well, especially if they were priced right.
@dukeisduke: Ford was thinking of sending the EcoSport up north but couldn’t/wouldn’t make it up to snuff for the US market. Instead, we’ll be getting the Fiesta.
What I’m more curious about from a inside perspective is, do you think the joint-venture partners are going to get thrown out on their asses or do you think they are actually establishing some kind of valuable permanent presence?
It is pretty much an open secret amongst the expat contingent working for the joint ventures – and the secret gets more open as some beers are consumed – that “China wants us out in eight years time.”
You see a big push in China for “own brand” development. There are also noises from the government that any assistance to the car industry will be focused on indigenous brands. Never mind that the state controlled biggies – FAW, SAIC, Dongfeng et al – are also the biggest players in the joint venture game.
At the JVs, presence of foreign personnel is already being thinned out. As their tour is up, they are not replaced. JVs usually started with a funny “twins” system, where a Western and Chinese guy shared the same job. This was of course inefficient, but a good learning experience for the Chinese twin. He can do the job by himself now.
I don’t think it will be a “thrown out on their asses” scenario – the Chinese are too clever for that. They won’t do a Putin. Their technologies are still too intermeshed with Europe and Japan. It will be a gradual process. It’s natural – in other fields it’s called “disintermediation.”
@ra_pro: I’m sorry, you are wrong. You need to look at actual age distribution graphs before rehashing the “one child” stuff. China has no dearth of babies. The one child policy is already being relaxed. Even before that, only “35.9% of China’s population was subject to the one-child restriction,” says Wikipedia. The policy was enacted in 79. It will be 2040 before that generation retires.
Europe and Japan had a de-facto one or no child policy since the early 70’s (when the pill came out.) Birth rates halved. Germany’s and Japan’s population graphs look like nuclear mushrooms. The population peaks are heading towards retirement.
A big reason for China’s sudden growth was that a population peak entered the 20+ range, where you found families, need apartments, get jobs, buy refrigerators, cars ….
Birth rates – whether affected by law or by personal choice – have a long lag time. Babies not born now won’t be missed for decades. In Germany, the median new car buying age is in the 40’s. That’s where Germany’s population peak is at the moment, and that’s why you don’t see the big contraction as in the US.
In China, mass motorization has just begun. It has decades to grow just to catch up with motorization in Western countries. Even a zero child policy wouldn’t affect that. In 30 to 40 years, it would.
Mexico, by the way, has a very healthy population graph. The US looks decent, not as bad as Japan and Germany at all. The boomers are retiring. But they made more babies than Germans or Japanese.