As reported here, Daimler AG plans to increase its sourcing of automotive components from China nearly eight-fold within four years. The luxury car maker will buy $3.25b worth of car components per year in China. Now, BMW is itching to get in on the act. Not that BMW is new to buying parts in China, they have done that for years, mostly unbeknown to their well-heeled customers. BMW and Daimler are in talks to create a huge buying co-op. They want to create critical mass, and drop the bomb on their Chinese suppliers, the German Handelsblatt reports. By concentrating their buying power, Beemer and Benz intend to save €350m per year, in discounts alone. To assuage their American clientele, they say that they will also extend the stingy hand of their allied purchasing departments to parts suppliers in the U.S.A. However, with the dollar high and U.S. parts manufactures dead, or on the brink of extinction, the BMW/Mercedes buying axis is squarely targeted at China. The “deeper discounts” news from Deutschland already has Chinese parts makers atwitter and alarmed. Here is why ….
For long, Volkswagen and Audi have profited from their purchasing clout in China in a big way. They produce the same cars in China, they use the same parts for production back home. Made in Germany on the outside, Made in China on the inside. For a year, BMW and Daimler have been discussing an axis of acquisition already. Now Daimler CFO Bodo Uebber is getting edgy and signaled to Munich to “get on with” finishing the deal. Times are tough, and with a €350m saved here, and a €350m saved there, soon you’ll be talking real money. BMW wants to save €4b until 2012 in purchasing. Cable harnesses are already being outsourced to Africa. In the meantime, other makers in Europe are busy forging alliances: Peugeot, Toyota and Citroen together build cars in the Czech Republic. Fiat and Ford are in the heavy petting stage, aimed at giving birth to small cars. Parents BMW and Fiat want to arrange a tête-à-tête between Mini and Alfa. How far until we’ll see a huge parts purchasing co-op for the whole shebang?
This is a bad thing, because money is the prime motivator. Instead of integrating lower cost parts on a “you have to earn a place in our vehicles with a durable, quality part that’s less expensive (due to your much lower labor costs), and we’ll see how that goes”, It’s SAVE MONEY NOW, WE’LL SORT THE QUALITY ISSUES LATER!
A lot of unwitting drivers are going to suffer while they “beta-test” the new Chinese subcomponents.
Who knows, maybe we’ll be seeing a resurgence of the “sub-100,000-mile car”, like the Big 3 offered most of last century – It’s a proven way to keep the showrooms full.
We’re becoming inextricably allied with Chinese interests, but much too quickly and for the wrong reasons.
This cannot be sustained.
If this keeps going, then the world of “Rollerball” may come to fruition, and the Asian countries will be the “manufacturing” center.
What will the USA be, the “consumer” center?
It’s the mentality of cost trumping everything else. The Wal Mart mentality.
I’m peripherally involved with a company that imports product from China and sells that product under a major U.S. name brand. 20% failure is the norm with sometime near 100% failure of early production of new items.
The Chinese, regardless of contracts and such, will produce the cheapest, fastest way possible with little regard for quality not to mention workers, the environment and so on.
Its too late. If it weren’t China it would be somewhere else.
US industry originated by stealing British fabric machinery designs and using them here to cut costs. US industry is not about to re verse its lifelong passion to say “the hell with these locals, its cheaper over there”.
Germans? Well I thought they were proud of their manufacturing.
Once again, the bean counters triumph over the engineers. Bean counters get bigger pay checks for the next eight quarters (that’s how their life is measured, BTW) before their companies go down the drain, then they blame engineers for failure to make quality parts with 50% of the budget and people they had before.
Short sighted moves like these will let Toyota move even further ahead on the top end and open up the market for Chinese cars to jump in on the low end. This is no time for bean counters to be running the show.
A close friend’s dad works for a tier-1 supplier that is working on expanding its globalization. They send him around the world looking for locations that are cheap but that can actually build things.
China sucks. Every bad American stereotype (amazing at math, best students, etc.) is based on the emigrants from China that had the intelligence, work ethic and luck to escape. Everyone in China is too scared to make independent decisions and their technical capability is overrated.
India is much more advanced. The risks in India come from it actually being the largest democracy in the world; things like labor unionization. It’s harder to break the eggs when they can vote. To India’s credit a major Indian company is selling two car lines in the US with brands that it owns. The Chinese can’t even manage to sell a rebadged car through an established US brand.
Places like Vietnam and North Africa are the new lowest cost frontiers.
I couldn’t stand the engineering Achillies’ Heels and obscure repairs that came with German cars back when they were actually German; this news makes me even happier that I’ve sworn off German cars. I will “never forget” the cost of the repairs on the one German car I owned.
Really, it’s not like the Chinese were price gouging – they were borderline dumping to expand market share. Knocking them down on price is not likely to have good results.
Not disagreeing with you slushbox, but to be fair, Tata did not spend the time or effort to develop Jag/Landrover from scratch, they just bought a turnkey operation, for now.
20% failure is the norm with sometime near 100% failure of early production of new items.
I recently purchased a batch of new screwdrivers. I leave tools everywhere, and having a duplicate set seemed like a good idea. I was trying to removed a screw with a flat head screwdriver, and suddenly it started to spin around very easily. I thought I had stripped the screw. As it turns out, the handle was spinning around the shaft. The screwdriver was useless. I switch to the ‘stubby’ version and tried again. The head of the screwdriver twisted around instead. The whole set was useless. So I can easily believe what you are saying.
At least they weren’t saturated in lead…they save that for children’s toys.
It’s true. Don’t buy Chinese tools. If you have the money, stay with Snap-On. However, don’t be so quick in damning the Chinese. Then can produce quality product if you let them, if you ask them to, if you make them sign a contract to that effect, if you watch them, and if you pay a little more than what the crap costs. The big auto makers all have purchasing/engineering departments in China, and they get quality parts, because they manage the quality. Mattel apologized, because they didn’t manage the quality. If you don’t manage Chinese quality, if you just go for the lowest bidder, then you get what you pay for: Crap.
I own a 1995 E320 Wagon that is my daily driver. In 1995 it cost $50k new. $50k in 1994 dollars translated into 2008 dollars with a 4% inflation rate is $86k.
Last I checked, an E350 Wagon cost $55k. Somewhere, somehow, Daimler had to save over $30k in order to maintain their 1995 profit margin.
Business is not easy, folks.
I forgot. Snap-On manufactures in China. So does Bosch. And sundry others. You need to know how to manage quality.
Well maybe BMW can outsource their auto trannies from ZF to someone in China — then maybe they’ll last longer than 70k miles :)
Just don’t have Aisin build them like the Honda Autos :)