By on November 16, 2008

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!

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8 Comments on “Editorial: Bloom Off The Rose For Chinese Car Industry...”


  • avatar
    OldandSlow

    The last thing most Asian manufacturers, especially Chinese, will tolerate is a union workforce that can shutdown assembly lines, if they are not happy. South Korea is the exception here. Their workforce regularly shuts down factories.

    I’ve been to Asia. The atmosphere is way more authoritarian than it is here.

    A high percentage of assembly line workers live in on-site company own dormitories.

    One of the things that caught my eye was how in even in Korea and Japan the number of folks who have to wear a uniform at work. It is much more than you see here in the States and there a lot more people working in manufacturing.

    Another thing that caught my eye, was the predominance of multistory apartment buildings. The Hong Kong model has really taken off in China.

    With so many city dwellers living in high rises, where are the Chinese going to put all the excess cars that they’ll be producing? I’ll bet the answer is overseas.

    Asia put together may well already be half of the world’s economy. With India and Brazil added, you may well be looking at economic engine of the worlds economy. Cash is king right now and Asia is still flush with cash. They better not crash and burn.

  • avatar

    Weeeeeelll, there was a story a while ago about Korean owners of a factory in China. They shut it down and fired all workers. The enraged workers incarcerated the executives in their offices. The police did not intervene, saying it was “an international matter.” If the bosses would have been Chinese …..

    And the funny thing is: A lot of Chinese workers in fact are unionized. See http://www.washingtonpost.com/wp-dyn/content/article/2006/08/09/AR2006080901924.html

    But the unions are strange breed here. When I came here first 4 years ago, I joked with the head of a company: “At least you don’t have to ask the unions for everything.” “We have a union here,” the man said, “but asking is quick: I’m also the union boss.” I heart China.

  • avatar
    OldandSlow

    Well then…..Rick Wagoner better stay the hell out of the Tubes in downtown Detroit just case that practice catches on here the States.

  • avatar
    VerbalKint

    Back in the late 90′s I worked for a Co. that designed & built auto plant welding lines. Progressives (desperates) that they were they did a GM SUV line in the Peoples “Republic”.

    Among the silly observations we round-eyes made: Who are those three sour lookin’ men that follow the Chinese engineers around everywhere?

    Those guys/gals sure love our shopping malls. Especially liked their shopping trip (on our dime) to NYC–two never came back. Created quite the hubbub that did!

    Isn’t it strange all the safety equipment normally found in Western plants was ordered deleted?

    Why on earth do they want the welding equipment to be able to weld steel stack-ups 2-3 times thicker than found on any normal vehicle?

    Why is their plant surrounded by concentration camp fence? Why is the fence surrounded by a vast open space?

    Why doesn’t their plant have any heat?

    Why do we have to pay for the shattered, frozen water jackets that cool the equipment because the plant is not heated?

    Why did they take our passports? And why didn’t we get them back until after said water jackets were replaced gratis?

    “The capitalists will [continue to] sell us the rope…”

    VK (now standing in the bread lines)

  • avatar
    B.C.

    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.

    That is hilariously brutal. I wonder how much hate mail you get …

  • avatar

    VerbalKint: You came 10 years too early. Now you must have your passport on you at all times. Life and work here is now quite good. The security surrounding plants is laxer than in Wolfsburg (where they want to impound cellphones or laptops with cameras – unless you lie and say your latest 5 megapixel phone doesn’t have a camera.) One of the juiciest jobs of the members of the United Brotherhood of Carpenters and Joiners of America: To build the new US Embassy in Beijing. Wait, the job got a little less juicy: In March, their favorite hangout Maggie’s was closed in preparation for the Olympics. Some said, at Maggie’s one could purchase companionship for yuan. I could never verify that rumor …

    Some things never change: Still no heat in Shanghai. Shanghai is south of the Yangtze river, where, by official edict, it is warm, and no heat is needed. Here in Beijing, heat is officially needed between Nov 15 and March 15, and we were freezing our smaller and smaller things off last week. Now it’s cozy.

  • avatar
    AG

    If I recall correctly, China requires at least 7-8% annual economic growth just to keep up with population growth.

    However, one day this one-child policy of theirs is going to lead to a sharp drop in population. Then what?

  • avatar

    … uh … no more growth necessary?


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