BMW visits CH-Auto
History tends to repeat itself – in different ways. One of the secrets of Japanese quality was a shortage of money. Bad quality was seen as waste – known as the detested “muda” to scholars of Kaizen. Lines had to be made more flexible; re-tooling had to be made easier, all because there was no money to waste. Likewise, China is getting better at making cars. One reason: It’s getting better at cutting corners, says a report by Reuters.
The man who wrote it knows Japan and China well. Norihiko Shirouzu was the Wall Street Journal’s China correspondent, now he is the man on the Chinese car beat for Reuters. He says:
“Paring back on crash tests, skimping on frills, simplifying designs, using cheaper materials and, in a departure for the industry, outsourcing most of their design and engineering are having a profound effect on the cost bases of China’s dozens of car makers. Some are now able to sell cheap and cheerful small cars for about 40,000 yuan ($6,350) – less than half the price of a plain vanilla Toyota.”
The outsourcing part is totally different from what the Japanese did and still do. Eight out of ten cars sold by independent Chinese automakers are the handiwork of three independent design houses: CH-Auto, IAT Automobile Technology Co. of Beijing; and TJ Innova Engineering & Technology Co. of Shanghai.
CH-Auto is a legacy of failed Chrysler. The company was established in 2003 by a small group of jobless Chinese engineers who had trained with Beijing Jeep, a former joint venture between BAIC and American Motors, later Chrysler. According to the report ..
“CH-Auto and its rivals say they have moved beyond aping foreign designs. Instead of copying the shape of a component or an entire foreign car, they try to match its performance as well – often successfully – even as they improvise and simplify the original design to cut costs. The aim is to make cars affordable to China’s emerging middle class, people who are earning 50,000 to 60,000 yuan a year ($7,900-$9,500).”
The competition in Japan already is taking note. Says Shiro Nakamura, chief designer at Nissan:.
“This is a warning shot to the established engineers who have told their management time and time and again that this is the minimum cost they can achieve with their existing design and production methodology. Now the Chinese are saying they can cut another 30, 40 percent of the cost.”
“This is a warning shot to the established engineers who have told their management time and time and again that this is the minimum cost they can achieve with their existing design and production methodology. Now the Chinese are saying they can cut another 30, 40 percent of the cost.”
In my old line of work, I used to dread it when the CEO bothered to read a newspaper before the day started. It would be a fruitless week-long fight afterwards trying to explain, yes, why the costs can’t go down any further… unless of course, you actually intended to piss off the customer.
Any American who buys Chinese-made products on the cheap – thinking they’ve gotten something for a steal…
…and then wonder why the dry wall is rotting, the baby toys are poisoning infants and the milk, dog food, newborn formula, etc are testing high for levels of toxic chemicals pretty much got exactly what they deserved.
Remind yourself of that next time you ride in a Boeing airliner.
+1
It’s not that Chinese manufacturers can’t make quality goods, they don’t because they are trying to undercut their competitors. Buyers who only look at price end up buying low-cost and low-quality goods.
A non-car example: 5 years ago I bought a barbeque, along with a friend. I bought a Canadian-made unit, my friend a cheaper Chinese-made unit. Today, mine works just line new. It fires up every time, and it is rust free even though it has been outside for the last 5 years.
The other barbeque was junked last week. The cheap steel is rusting, the igniter doesn’t work anymore, and the ceramic coated grill is cracked.
Can you believe that the price difference was only $50?
That’s unrbridled businees competition for ya – with little regulation and even even less govt. oversight.
“Can you believe that the price difference was only $50?”
Totally, that’s why sometimes it pays to read the “Made in ______” sticker… and to have a look at how the product is built.
OTOH, we have found that there are different levels of quality, and that 3rd world destined products seem to be inferior to 1st world versions. For example, we bought a cutlery set in YV for around $30, and that same money buys here a much much better product, and both came from PRC.
It’s pretty easy to cut costs when you 1) Don’t have to deal with labor unions and 2) Pay minimal wages and 3) Don’t have to worry about pollution controls.
But these aren’t necessarily “unskilled” unionized workers doing factory work. We’re talking about actual design and engineering.
Personally, I think it’ll be interesting to see all the smugness and glib union-bashing evaporate from some of my white-collar colleagues now that their (non-unionized) jobs are the next to be shipped across the pond.
That’s already happening in the Information Technology world. One skilled US IT worker can be replaced by three from China or India, and it is exactly what is occurring throughout the industry.
Well, yeah, skipping crash and emissions tests helps as well. Leave out the airbags and thin out the pillars while you’re at it. That saves material, time, and cost.
I really don’t think this is a serious threat – yet. It may become one, but not soon.
“There’s no such thing as ‘cheap and cheerful.’ There’s ‘cheap and nasty’ and ‘expensive and cheerful’ get that straight.” –JC
This is very interesting, makes me wonder why it hasn’t (apparently) been exploited as a business here.
Are we missing something else here?
The article states that a few design firms are supplying dozens of auto “manufacturers”. This business idea alone might be saving some money.
I think you may be unaware that there are several design houses that will design and develop your car for you already, both Porsche and Lotus Engineering have done so, and there are many others.
I’m not convinced it saves anybody much money.
This approach will never lead to cars acceptable in the US and Europe or Japan, for that matter. All impose heavy regulations designed to make cars safer and more efficient. And that entails heavy-duty engineering – hybrid system, lightweight structures, electronic intensive nannying devices.
Outsourced super low cost engineering will never be able to compete in engineering demanding US and European markets.
The Chinese are not miracle workers. Their economy looks miraculous, but it isn’t. It’s just a loosening on investment and reward. Not all that hard to do, the government just has to allow certain things. And they’ve regulated it so badly, they’re riding for a fall. The Chinese economy will look significantly less miraculous in, oh, five years’ time. And in ten, we’ll all be wondering why we thought they were geniuses.