Time for the United Auto Workers (UAW) to collect second-hand songbooks and ship ‘em over to their comrades– make that “union brothers” in China. Chinese taking our jobs? Wake up guys! Solidarity forever! The Chinese worker is taking it on the chin just like the working stiff in God’s Own Country. And let’s ignore the fact for a while that FICA, SECA, COBRA, and VEBA are not part of the Chinese language. PSA Peugeot Citroën, an affiliate of Dongfeng Motor in China, has “decided not to renew the contracts” (translation: has fired) 1000 workers on their Wuhan site, Gasgoo reports. Volkswagen, which depends on China for 15 percent of its worldwide auto sales, gave the Chinese equivalent of pink slips to 700 people at their Changchun factory. According to Chinese media reports, Ford, BMW, Chery, and untold more are busy. Busy thinning out their working masses, that is. Where did all the thousand flowers go?
Renault delayed their entry as a Chinese producer until kingdom come, or a turnaround of the world economy, whatever comes last. Even grimmer news from Chinese car dealers: 40 percent are losing money, and in a third of China’s car dealers everybody will lose their jobs, because they will close. Less jobs are yet to come.
The good new times are over in China. According to reports published by J.D. Power, the increase in auto sales has slowed down to 6.7 percent this year, as opposed to 22 percent in 2007 and 26 percent in 2006. An analyst at the usually well-informed Nomura bank in Japan sees China’s auto sales growth slowing to 3.8 percent next year, and 6.4 percent in 2010.
China’s car industry, which wanted to crank out 10m units by year’s end, recently slashed its 2008 sales targets to eight million, said Thomas Callarman, an operations management professor at the China Europe International Business School. This comes after a huge ramp-up of production in anticipation of unbridled demand. Callarman is chiding his Chinese children. “Two years ago, some of the same manufacturers were complaining they were already having over-capacity, and then they were building more capacity.”
Take that smile off your face, folks, this is serious. A concerned International Monetary Fund said that last year, China accounted for 27 percent of global economic growth. That’s more than any other nation. Hu Jintao, China’s Paramount Leader, agrees. “Steady and relatively fast growth in China is in itself an important contribution to international financial stability and world economic growth,” Hu said at the G20 meeting, pointing to China’s recent stimulus package. Even the grand Chinese stimulus package may not be so grand. Rumors of re-packaging of previously announced plans are all over the press.
The dire news even reached Europe. “We will see much, much slower growth in China,” said Ivan Hodac, himself Secretary General of the European Automobile Manufacturers Association (ACEA). In a rare case of economic insight, Hodac then prognosticated: “In an economic slowdown, automakers are typically the second sector to be hit after the construction industry, because, next to housing, cars are consumers’ most expensive purchases.” Never thought of that.
Not to be left out, Barron’s also weighs in on the issue. For some unfathomable reason, Barron’s is more concerned with ad sales of China’s internet portal Sina.com. Who’s to blame? “Autos, real estate and financial, the companies three biggest categories of advertisers, have all been hit hard in the slowdown. (If you thought China was immune, think again.)” OK, OK, we’re sinking. I mean, thinking.
As a sign that things must be as bad as can be in the Middling Kingdom, even Aljazeera finds the issue worthy of a closer look. Usually Aljazeera is an outlet for videos by bearded people living in caves in inhospitable areas of Afghanistan, and who employ pilots who can start, but not land. Now Aljazeera writes: “China’s industrial output has slipped to a seven year low as the global economic slowdown continues to batter the world’s fourth largest economy, eroding demand for Chinese exports and causing manufacturers to throttle back on production.” Their favorite video producer hasn’t claimed responsibility for that one– yet.
Even in the most poisonous flower is a little bit of honey, a possibly Chinese proverb says. After two months of decline, sales recovered slightly in October, rising 8.4 percent on-year. This only after Toyota, Volkswagen and others put piles of Yuan on the hoods of new models.
Long-term growth potential in China remains rosy. Only 20 people for every 1,000 own a car in China, compared with more than 500 per 1,000 in Europe and way more than 700 per 1,000 in the United States. Once the Chinese can afford a ride again, they will buy. Some scholars of Milton Friedman and Darwin even think that the current “slow down now is to some extent beneficial to the industry because we’ll be taking out a lot of the inefficient capacity.” Roger that says Raymond Tsang, a partner at the consulting firm Oliver Wyman. He’s not alone in foretelling a consolidation amongst the 100 or so auto makers in China. Keep those songbooks coming!