SPEAKING
FREELY The dragon at Detroit's
gate By Gal Luft
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click hereif you are interested in
contributing.
The Chinese debut at
the Detroit Auto Show with the Geely 7151 CK, a
mid-sized sedan planned for sale to
budget-conscious American families for less than
US$10,000 by 2008, should be
viewed as the opening shot in
what is likely to be a clash of titans between the
US and Chinese auto industries, one that could
send Detroit to the ropes.
With their
market share sliding, their bonds downgraded to
junk and their quarterly reports showing 10-digit
losses, the Big Three - DaimlerChrysler, Ford and
General Motors - are facing a challenge far more
formidable than the Japanese onslaught of the
1970s. With 1.3 billion people, an economy growing
at a sustained rate of 8-10% a year and a middle
class larger than the entire population of the
United States, car fever has hit China on a
monstrous scale. Millions of Chinese with growing
disposable income can now abandon their bicycles
and motorcycles in favor of a family car. As a
result, China's auto market is growing by leaps
and bounds, and it is by far the world's
fastest-growing. In 2003 demand for automobiles
soared by 75%. Last year it slowed down to a more
sustainable growth level of about 15%.
China is already the world's
fourth-largest car market, with sales of 2.3
million units in 2004, and it is projected to
overtake Germany by the end of this year and Japan
by 2010. It will not be long afterward that China
passes the US. For now, China's auto industry
sells most of its cars domestically, but this is
about to change soon. Honda is already selling
200,000 Chinese-made automobiles in Europe every
year. Toyota is building a plant that will shortly
manufacture the highly successful Prius. Nanjing
Automobile Group bought Britain's MG Rover last
July and is planning to build, under the MG
marque, sports models and small and medium-sized
vehicles. And now there is Geely.
Despite
the fact that a Chinese auto worker earns a
twentieth of his US counterpart's wage, and health
and other benefits are nowhere near those in the
United States, American auto makers believe that
the quality and appeal of their products will
defend them against China. It is an industry sport
to deride the Chinese cars as unattractive and
years behind the market. And indeed, China still
has a ways to go before it can produce cars of
quality comparable to those of the Big Three. But
the quality gap is closing rapidly.
China
trains four times as many engineers as the US
while systematically violating patent laws and
replicating technologies. The Chinese allow
foreign auto makers to operate in their country
only through joint ventures with domestic
manufacturers. This allows them to learn new
manufacturing techniques and gradually to improve
the quality of their products. China's auto
industry is also pushing into advanced green and
high-efficiency technologies. It could take as
little as a decade for China's auto industry to
become competitive with Western manufacturers, not
only in terms of cost but also in terms of quality
and fuel efficiency.
Detroit's dismissive
approach toward the Chinese resembles a similar
attitude toward Japanese manufacturers pioneering
technologies in the 1990s. While the US
manufacturers gorged on short-term profits from
gas-guzzlers, farsighted Asian manufacturers
broadened their product mix and took the kinds of
technology risks that their US competitors were
unwilling to accept. GM and Ford laughed openly at
Toyota's hybrid technology and derided the
"$20,000" subsidy per car that Toyota allegedly
invested in early production. Today, with
unprecedented profits and long customer waiting
lists for their hybrid cars, Toyota is the one
laughing. The US auto makers failed to recognize
the huge and growing customer demand for hybrids.
Their public rebuke of what is becoming this
century's primary drivetrain is, in the words of
former assistant secretary of energy Joseph Romm,
"one of the biggest blunders in auto-industry
history".
GM's answer to the mounting
challenge from Asia is the fuel-cell vehicle, a
much-touted technology that still faces daunting
technical, economic and infrastructure issues.
Despite growing consensus that
hydrogen-fuel-cell-driven vehicles are not likely
to come into practical use for at least another 25
years - a recent Massachusetts Institute of
Technology report predicts they will not be
commonly used before the middle of the century -
GM is still committed to produce a million
fuel-cell cars powered by hydrogen. However, with
the company's staggering losses of late, it is
unclear whether GM can stay in business long
enough to see the first hydrogen cars rolling out.
In light of China's rise and the prospects
of soaring oil prices, the US Congress faces two
options: help Detroit save itself now or bail it
out later. Based on the 2005 Energy Policy Act,
Congress prefers the latter. But continuation of
the laissez-faire policy toward the industry could
be a risky gamble that could end up costing
taxpayers dearly.
A recent report by the
University of Michigan's Transportation Research
Institute shows what could happen if oil prices
remain high while Detroit auto makers continue
with their current business strategy. The study
projects a decline in sales volumes of 9-14%, the
closure of 14 auto factories, primarily in the
Midwest, and the loss of close to 300,000 jobs.
Last year's announcement by GM and Ford on plant
closures and layoffs (Ford, which has been more
competitive than GM for many years, has announced
a radical turnaround plan that could result in as
many as 25,000 job losses) as well as the
Department of Energy's projection that oil prices
will remain over $50 a barrel for years to come,
validate the study's predictions.
No one
expects the US Congress to sit idly by while tens
of thousands of angry unemployed auto workers riot
in the streets of Dearborn, particularly not in an
election year. To avoid the bailout of the
century, Congress should seek new ways to help
Detroit to maintain its competitive edge against
an emerging Chinese auto industry. This can only
be done by encouraging domestic manufacturers to
produce, and consumers to purchase, US-made hybrid
vehicles, plug-in hybrid electric vehicles,
advanced diesels and flexible-fuel vehicles that
can run on alternative fuels such as electricity,
biodiesel and alcohols including ethanol and
methanol. Failure by Congress to push Detroit to
offer cars that fit the changing realities in the
global oil market will leave Americans no choice
but to buy the $10,000 fuel-efficient
made-in-China cars that will soon appear in US
showrooms.
Gal Luft is executive
director of the Institute for the Analysis of
Global Security.
(Copyright 2006 Gal
Luft. Used by permission.)
Speaking
Freely is an Asia Times Online feature that allows
guest writers to have their say. Please click hereif you are interested in
contributing.
