By on August 22, 2012

It’s not quite the bursting bubble that had been prognosticated by many through the last decade, but there is no doubt that “the world’s largest auto market sputters in a slowing economy,” as Reuters writes.

“Be careful what you wish for” is not the Chinese proverb it often is made up to be, but it applies: The red menace of Chinese car exports, longer predicted than the bursting bubble and likewise for long a chimera, finally appears to get going. The sputtering Chinese home market provides the push to find better fortunes abroad, but General Motors broke the dam that held Chinese exports back.

For some Chinese carmakers, writes Reuters, “exports, mostly to emerging markets such as Ukraine, Indonesia and Sri Lanka, may offer some relief from weak sales at home.”

Indeed, while Chinese automobile sales were up a little less than three percent in the first half of the year, China’s car exports rocketed up by 28 percent to 487,900 units, says Xinhua, citing data the data provided by the China Association of Automobile Manufacturers (CAAM.)

Geely, which owns the Swedish brand Volvo, “posted an 8.7 percent increase in first-half profit,” says Reuters, “but, while it sold 9 percent fewer cars in China, its exports trebled to 40,061 vehicles.” Geely is set to sell 90,000 cars outside of China this year, and wants to triple this to  300,000 cars sold abroad by 2016.  China’s Great Wall is another Chinese company with international ambitions. It has established a plant in Europe’s soft underbelly Bulgaria, and made quite a splash on Bulgaria’s sales charts.

While all eyes are on China’s second-tier manufacturers, China’s juggernaut SAIC has for years quietly built bases abroad – with the help of its partner GM.

Two years ago, Chinese car exports were just a trickle and were far outnumbered by high value imports, notably from Germany. One car manufacturer started to change the trade imbalance: General Motors.  GM started exporting the Made-in-China Chevrolet Sail. First to South America, other markets like Africa, Middle East and Eastern Europe followed.

“If this helps GM stay solvent and profitable, more power to them!” TTAC correspondent SVX perlie wrote back then.  Not quite. GM had just been bailed out in order to protect jobs in America, not to create jobs in China, not to undercut the already feeble chances of American products in export markets. Remember: When a car is made by a Chinese joint venture, at least half of the profits (and initially all of the cash) remain in China.

A few months after the Sail’s launch, success was reported. Said Reuters in early 2011:

“Foreign car makers now see China as a launch pad for exports, with General Motors blazing the trail with shipments of its Chevy Sail.”

“Analysts say early signs of success for the Sail will only encourage other car manufacturers to develop products in China and then use the country as a base for exporting elsewhere.”

GM’s support for China’s export machine dates as far back as the dark months of the end of 2009, when GM, financially over a barrel, cut a deal with SAIC, gave away the keys to the Indian market from which SAIC was effectively locked out, and even managed to lose its golden share in the Chinese joint venture.

Says the Wall Street Journal:

GM also has tapped SAIC’s deep pockets. In 2010, the companies launched a joint venture in India, a market that GM couldn’t afford to tackle alone. The venture is GM’s only business in India, producing no-frills microvans with a goal of expanding into Southeast Asia and other emerging markets.”

Those no-frills microvans are Wuling Sunshines, rebadged as Chevrolets and not adding to the fame of American engineering. GM gets an even smaller share of whatever profits they produce: GM only holds a 40 percent share in the SAIC-GM-Wuling joint venture.

GM CEO Dan Akerson already has second thoughts of the deal and tells the Wall Street Journal:

“If we would have been flush with as much cash as today, maybe we would have gone a different way.”

So far, GM’s and SAIC’s Chinese exports at least carry an American badge to keep up appearances and at least a small part of the money in American pockets. How long is another question. SAIC has been casting longing eyes on GM’s distribution network, and “GM can ill afford to alienate SAIC, its main partner in a venture called Shanghai GM,” the Journal says. A fifth of GM’s profits came from China last year, and those who hold the purse strings …

China’s wishes already influence the cars we drive. Says the Journal:

“The next generations of GM’s Cadillacs will have softer corners, dashboards with more gadgetry and plusher rear seats. The U.S. auto maker is tweaking the iconic American brand to make it more palatable to Chinese buyers and GM’s Chinese partner, even though Cadillac hasn’t sold strongly here.”

Meanwhile, SAIC is coming to America. Says the Journal again:

“This summer, SAIC opened North American headquarters in Birmingham, Mich., just 20 miles from GM’s Detroit base. After years of explosive growth, China’s auto market is cooling off. Yi Lu, president of SAIC USA Inc., called the growing importance of selling cars abroad a “significant factor” in the decision to go to Michigan. SAIC currently sells no cars in the U.S.”

Be careful what you wish for.

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25 Comments on “Wish Come True: China Finally Exporting Cars In Earnest – With A Little Help From Its American Friends...”


  • avatar
    PenguinBoy

    Here in Canada, the first Chinese made car was and is the Honda Fit.

    The example I saw at the local car show didn’t seem to me to have the usual Honda attention to detail – there was a sloppy looking weld on the window frame on the driver’s door for example.

    It would have been interesting to have had a Japanese built example on hand for comparison. It would also be interesting to see if these hold up as well as Honda’s traditionally have.

    I can see how it is no longer profitable to build an entry level car like this in Japan, but I’m not sure that it would be that much cheaper to sell in North America than a car built in Mexico. Last I heard, costs were rising dramatically in China, and logistics costs for something bulky like a car have to be considered as well. I don’t think either Chinese costs or shipping costs are likely to drop much in the near future. The only reason I can see for doing this is if Honda has some excess capacity at an existing Chinese plant.

    • 0 avatar
      Viquitor

      Here in Brazil JAC cars are now part of the landscape. Chery is here as well. I’ve been inside both JAC and Chery cars and I must say I wasn’t at all impressed – finishing is not a selling point, neither are ergonomics and overall design.

      But they are cheap.

      But China makes pretty decent gadgets. It might just be a matter of time before we see styling and build quality go up.

      • 0 avatar

        Oi Viquitor!
        They are still a small part of the landscape. Like you said, the cars are just not ready. THe question is: When will they be? I keep hearing people say 5 yrs. And when they are ready they will make a killing. COnsidering that A-segment cars in Brazil (Palio, SIena, Gol, Voyage, Logan etc) are 75% of our market, you can see that they could come eventually put a lot of other companies out of business.

      • 0 avatar
        Viquitor

        Marcelo, I don’t know when, and to what extent, but that’s bound to happen in a few years. I’ve been spotting quite than a few in my daily commute from Niteroi to Rio. There’s a JAC dealership just two blocks down the road from my office, maybe that’s why I see so many of them.

        But there are some key points.

        Local production is a big deal for the average brazilian car buyer. So is tradition and brand image. Brazil is a deeply conservative country. It took Fiat 20 years of very strong investments in facilities, dealerships and marketing to really make it, and I don’t see any of the chinese put out the same level of effort.

        I think JAC stands a chance to be relevant in brazilian marketplace because they were clever enough to get picked by SHC Group. Whoever ends up with CAOA (word on the street is that the deal between CAOA and BYD is as good as done) might have a chance as well. And Chery, as long as they give up on the uruguayan connection in exchange for more suitable industrial operations.

        But I’m talking relevancy here, not Gol and Palio challenging numbers. What I do think is going to turn brazilian market upside down is the Hyundai HB20 and the Toyota Etios. The chinese, not so much, at least for this decade.

    • 0 avatar
      Freddy M

      Obviously it’s hard to spot differences on the road when I’m driving. Nowadays whenever I see a Fit on the road I try to deduce by the Ontario License Plate sequence if it is one of the newer Chinese built models.

      Were there any exterior “anomalies” on the Chinese example you saw?

      • 0 avatar
        Ron B.

        Australian car importer ATECO has been selling Cherys for while ($10,000 on road) and Great wall utes(pickups) for Around $20,000 on road. Com[are those prices with the cheapest any other brand and it doesn’t matter if the interior is crap especially when they power steer,air,CD player etc as standard.
        The biggest fly in the ointment has been the recall of all the cherys sold and a lot of the great walls because of Asbestos …
        Australia has has banned the selling of anything with asbestos because of the well known effects that even one fibre in the lungs has.
        Buy Chinese anything and it’s caveat emptor.

      • 0 avatar
        PenguinBoy

        No exterior anomalies that I could see. The door handles and some interior plastics looked flimsy, but I’m not sure if the earlier Fits were like that as well. It would have been interesting to see a Japanese built Fit next to it for direct comparison. The Fiat 500 that was nearby impressed me more, both from a styling and perceived quality standpoint. If I was looking for a small urban commuter car I would probably take the Fiat over the Fit. The Fit has better space utilization, but if I was looking to haul people or things on a regular basis I would be looking at something bigger than either of these cars.

  • avatar
    CJinSD

    Will this be enough for Obama to reverse himself again and go from being proud of the GM bailout to saying the GM bailout was actually the work of Bush, who gave GM a life preserver in exchange for Obama’s worthless word on a free trade agreement with Colombia?

    • 0 avatar
      mike978

      Didn’t we sign a US-Columbia free trade agreement in the past year or so?

      http://www.ustr.gov/about-us/press-office/press-releases/2011/october/statement-us-trade-representative-ron-kirk-congres

      Seems like the worthless words actually were true, also free trade agreements with South Korea and Panama were signed in the recent past.

      • 0 avatar
        CJinSD

        Only took him three years. I’d given up hope. I figured it was like his lifting the ethanol mandate to stop starving people in developing nations and reduce US food and energy costs. Just when it looked like he was going to do something that wasn’t negative, he didn’t.

    • 0 avatar

      Hi CJ. THough the free trade agreement with COlombia probably has more to do with gaining influence and thus better control of the drug trade in that country, it has a lot to do with the US’s long-term strategy. Namely to corner Brazil and Argentina and force them into a free trade agreement with US. So, I think irrespective of Democrat or Republican, you’ll see more of these apparently worthless agreements with other lesser economies in Latin America.

      • 0 avatar
        CJinSD

        Obama is a friend to Brazil’s leadership. He cares more about their success than he does that of our country. It may be in US’ long term interest to trade with Brazil, but we don’t have the luxury of long term interests until we get rid of the regime that prints 44 cents of every one of the 3.6 trillion dollars a year that it spends. Obama dithered over Colombia because he had to wait until his union cronies stopped paying attention.

      • 0 avatar
        Viquitor

        CJinSD, that is not at all accurate. But then we’d have to talk politics, and I guess that’s not what TTAC is all about.

  • avatar

    In Brazil, the governments actions of cutting taxes for those who produce locally has taken its toll on Chinese imports. With something around 2% of sales, ‘local’ makers are very worried. I have spoken with some Brazilian auto industry suits and they think the invasion is still 5 yrs off as the next generation of cars from China reach the same level of others. FOr now, pricing aside, Chinese cars ride badly though they seem to hold up as much as the others.

    OTOH, Chinese JAC is building a factory in Brazil. When it comes on-line in a year or two, their sales cut dramatically increase as they’ll be able to enjoy the same benefits of local makers.

  • avatar
    tresmonos

    China has jumped the proverbial ‘overhead cost’ shark. If you’re not already set up to manufacture in China, it’s almost not worth it anymore if you’re doing it to export your product. There are cheaper emerging markets. By emerging, I really mean oppressed.

    • 0 avatar
      PenguinBoy

      Agreed. Rapid wage inflation in China has increased costs there, and high logistics costs (thanks to $100 / barrel oil) have undone the effects of trade liberalization.

      China should have clawed its way further up the value chain by now, but it hasn’t. There still aren’t any Chinese global brands. People buy iPads because they are “Designed by Apple in California”, not because it is “Assembled by Foxconn in Chengdu”.

  • avatar
    dan1malk

    “The next generations of GM’s Cadillacs will have softer corners, dashboards with more gadgetry and plusher rear seats. The U.S. auto maker is tweaking the iconic American brand to make it more palatable to Chinese buyers and GM’s Chinese partner, even though Cadillac hasn’t sold strongly here.”

    Isn’t this what Ford is doing with their entire line up?

    Sounds like businesses just going where the money is. Isn’t that what businesses are supposed to do?

    • 0 avatar
      Freddy M

      RE: Ford

      Not exactly. Ford isn’t remaking their entire lineup to suit other markets, as much as they’re taking existing product offerings and design tastes and content and pushing it onto the American base who traditionally are not accustomed to European style Fords.

      • 0 avatar
        dan1malk

        Hmm.
        So Cadillac isn’t taking their Chinese design tastes and content and pushing it onto the American base who traditionally are not accustomed to Chinese style cars?

        Sounds similar enough to me. Fords fancy marketing just puts a positive spin on it, like the WSJ is putting a negative spin on Cadillac. Maybe if they just called it “One Cadillac” it would be alright?

      • 0 avatar
        Freddy M

        Point taken. I agree there are great similarities in the end result of both campaigns.

        My only concern is I finally grew to actually “like” the pointy and sharp edges of current Caddy’s. Now according to the article they’re gonna round them out again?

    • 0 avatar
      PenguinBoy

      I’m not sure that the Chinese market for luxury goods is all it’s cracked up to be. While incomes are rising rapidly, there still aren’t that many pulling down enough money to be in the market for new Cadillacs.

      “The real problem is that many analysts had exaggerated the size of the luxury-goods segment in emerging markets. China is by far the largest emerging-market economy, with 1.6 million households that can be called “rich” – defined as having annual disposable income of more than $150,000. But this is still smaller than Japan’s 4.6 million and a fraction of the 19.2 million in the United States. The numbers of rich households in India and Brazil amount to barely 700,000 and one million, respectively.

      The point is that developed countries still dominate the income bracket that can afford luxury goods. The explosive growth recorded by this segment in emerging markets in recent years reflected entry into previously untapped markets, with the subsequent slowdown resulting from saturation. The number of high-income households is still growing, but not enough to justify the 30- to 40-per-cent compounded growth rates expected by some.

      This does not mean that growth opportunities in emerging markets have disappeared, but expectations do need to be recalibrated. Despite the economic boom of the past decade, China still has 164 million households that can be called “poor” (with annual disposable income of less than $5,000) and another 172 million that are “aspirant” (between $5,000 and $15,000). Similarly, India has 104 million poor households and 107 million aspirant ones.”

      source: http://www.theglobeandmail.com/commentary/columnists/who-are-tomorrows-consumers/article4476196/

  • avatar
    BrianL

    “GM had just been bailed out in order to protect jobs in America, not to create jobs in China, not to undercut the already feeble chances of American products in export markets.”

    GM was bailed out not just to protect those jobs, but the economy as a whole. But, if you handcuff GM and expect it all jobs to be created in the US, they are going to be right back into bankruptcy. The largest car market in the world is in China. Some of the least expensive labor is in China. It wasn’t like GM was going to be exporting cars from the US to India, South America, the Middle East, Eastern Europe, and Africa. It is hard enough for US manufacturing to make subcompacts in the US to sell in the US.

    Your suggestion is that GM can manufacture these cars in the US and export to these countries. I would love to see someone be able to do that. Currently, no one does.

  • avatar
    geozinger

    Dead horse, meet flogger. Flogger, dead horse.

    The ever-wonderful and beneficient Honda Motor Corporation is the first to sell Chinese-assembled vehicles in the North American market. Not the eternally evil General Motors Company…

    In North America, the champion of cheap manufacturing is still Mexico. Gotta love that Peso. If you are a non-US producer looking for great PR, there are a whole raft of Southern US states that will gladly seize private property to help you imagine your dreams. And help get the sitting governor (or whomever) re-elected. Gotta love that Dollar…

    Six, seven years ago, we’d heard that we (in North America) would be swimming in Chinese cars by now. Now, we’re hearing five more years. This reminds me of the promise of alt fuels vehicles heard so many times in the past. GM may actually be able to produce a car that runs on hydrogen by the time the Chinese get something viable for sales in the US…

    • 0 avatar
      tresmonos

      You know where you can find the most talented, cross-functional, multi-disciplined aggregate of automotove professionals? The entire Boeing 757 Delta direct from DTW to MEX on a Monday morning. All board priority, so you and the three other people can line up for general boarding.

  • avatar
    el scotto

    GM takes US government money to build cars in China to sell to third world countries. The tinfoil hat brigades will go insane. It’ll be good theater.


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