By on November 16, 2006

roewe22.jpgImagine an alternate reality where General Motors operates state-of-the-art factories with flexible manufacturing systems allowing production of vehicles with different platforms on the same production line. Where they operate with a lean manufacturing philosophy that encompasses purchasing, logistics, manufacturing, sales and quality management. Where they use non-union labor to keep costs down and profits up, avoiding the legacy costs unions bring to the table.  Where sales are up more than thirty percent. Huān yíng guāng lín to China.

In 1997, GM entered a 50-50 joint venture with Shanghai Automotive Industry Corp. (SAIC) to form Shanghai General Motors (SGM) Co. Ltd. At the time, it was the largest single foreign investment in China in decades; many analysts considered it a high-risk undertaking. They’ve since been proven wrong, as the partnership continues to prosper. Currently, SGM produces 29 products under five main brands: Chevrolet, Buick, Cadillac, Saab and Opel. Additionally, they manufacture and sell ACDelco parts and Wuling minivans and pickups. 

SGM also operates China's first automotive engineering and design joint venture: the Pan Asia Technical Automotive Center (PATAC). PATAC handles all the vehicle design, development and testing for SGM and their domestic joint ventures. It has more than 1100 salaried employees, many of whom have masters and/or doctorate degrees. Their emission testing facility is one of 11 certified by the Chinese EPA and can test to European or American standards (including California’s stringent super-low emission standards).

GM has invested billions of dollars in their booming Chinese operation. If anyone has any lingering doubts about GM’s commitment to this market, the American automaker has just announced their plans to mass produce hybrid cars in China by 2008. While they’ve eschewed hybrid cars in the US (focusing instead on pickups and the Saturn Vue), the company’s PR flacks state "the GM Hybrid System is flexible and cost effective and is ideal for high volume global applications, which include its introduction in China in 2008."  So far, The General hasn’t indicated any plans to expand its hybrid market in the US. But few industry observers would be surprised to see hybrid powertrains– or even complete hybrid-powered cars– coming through customs shortly after their Chinese debut.

So what does GM get in return for their investment?  They have access to what is arguably the fastest growing automobile market in the world; sales jumped 36.7% in the first three quarters of this year. GM’s leadership is acutely aware their Shanghai goose is producing dozens of golden eggs, and they’re doing everything they can to keep it healthy. During a visit to Shanghai earlier this month, Rick Wagner stated, "we are willing to invest ahead of demand here because we are very bullish that demand is going to keep growing here."

All is not sunshine and rainbows, though. SAIC is using the expertise and experience gained from their joint ventures to launch their own premium brand, Roewe, at this month’s Beijing Auto Show. Their first offering, the Roewe 750E, is based on the Rover 75 sedan. They will market it as a premium brand in direct competition with Cadillacs, Saabs and top line Buicks.  SAIC plans to launch 30 new models under the Roewe brand between 2006 and 2011, and hopes to produce 120K Roewe cars in 2007. 

Where does this leave GM? It’s too early to tell. Under Chinese law, foreign automakers have to be in a joint venture agreement with a domestic company. That means GM can’t sever their ties with SAIC– unless it hooks-up with another Chinese manufacturer. SAIC says it has gleaned "rich experience and resources in every field" from its work with GM. GM says it “understands" SAIC’s "desire for further growth" and is confident "SAIC recognizes that the success of both companies in the China market is closely linked to the success of our joint ventures." Industry analyst Michael Dunne states, "the Chinese formed joint ventures for one purpose: to learn how to do it themselves one day. That day is here."

In the short term, GM will feel very little impact from SAIC’s decision. Cadillac is one of the top brands in China, on par with (or maybe even more desirable than) Mercedes. Buick has been on the Chinese market for almost 10 years. Both marques have solid reputations as prestige brands, so it may take Roewe a while to catch up.  GM seems to have the inertia they’ll need to survive in the Chinese market.

However they can’t drop their guard. They have to keep up with market trends and keep manufacturing costs in check. And whatever else they do, they must avoid the brand dilution that plagues them in other markets. Hopefully, GM’s China connection will provide the capital it needs for a corporate turnaround.  In fact, the future of GM’s North American operations may depend on it.

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55 Comments on “GM Puts a Tiger in Their Tank...”


  • avatar
    jerry weber

    I have one problem with investing in China. It is a military dictatorship that practices capitalism. If there is ever a showdown between freedom for her people and continued dictatorial rule, I think the capitalism part could go down the drain. The other fear is that if the US and China get in a military showdown over any number of far eastern problems.ie. north korea, japan. taiwan, sinking one of our ships etc. all trade could stop between the two countries. Will it happen? It’s out there like a smoldering fuse and could go either way.

  • avatar
    Glenn A.

    Fully agree with you, Jerry. It’s not like we aren’t even being warned – if only we Americans would “pay attention” and read the internet news instead of the lame-stream press, which gives us only what the elite-in-power want us to hear.

    For example, not long ago, an extremely high Communist Chinese General made a statement along the lines that if America didn’t leave the Chinese alone when (not if) they decided to take Taiwan “back” then they would be very pleased to NUKE Los Angeles by way of a lesson to keep our nose out.

    Now, the Communist Chinese government did NOT climb down his throat nor fire him, nor was he even given any kind of slap on the wrist. This speaks VOLUMES for those who care to listen and be forewarned.

    Plus, the Chinese supply, support, and sanction NORTH KOREAN lunacy. What more need be said?!

    So, yeah, keep on going to Wal-Mart and buying Chinese crap so they can get rich enough to spend even more money on missiles to destroy us, folks. Buy the Chinese cars once (not if) they get here, that will accelerate the process even faster than toasters, shoes and shirts.

    So, short term profits lured all of the world’s car companies to go to China. They willingly went into a nation which believes that intellectual property theft doesn’t even exist, and soon the “fruits of their labor” will be in worldwide automotive markets and you won’t believe how quickly non-Chinese brands will be brushed aside in China once the Chinese cars come out. For one, they will be cheaper (no monies going to the 50% venture partners), in fact, already are.

    Those are my predictions.

  • avatar
    ash78

    OT comment for Mr Farago: Can you automatically stagger the release of new articles, as opposed to having both post sequentially, first thing in the morning? I think that will lead to far more hits and discussion. Just a suggestion. Thanks

  • avatar
    jacflash

    Something else to consider: GM has built itself a nice, complete auto manufacturing business in China, complete with engineering and local suppliers and state-of-the-art plants and a TON of local knowledge.

    Now, think: what happens to GM’s US production when GM decides it can no longer afford to deal with the UAW/CAW? Does the company die, as Farago seems to be hoping? Or does production of US cars JUST GO TO CHINA (etc.), all or in part?

    Watch the hybrids. It’s already starting.

  • avatar
    jazbo123

    Bob Lutz in a recent interview stated that fuel cell vehicles will likely devevlop in China since they have the resources to fund a hydrogen generation infrastructure.

    One of the reasons we don’t have the funds to support our own hydrogen infrastructure in North America is that we’ve sent so much of our manufacturing base and cash to China.

    I hope they enjoy the benefits of their fuel cell vehicles, while we sit back here funding their development while becoming a former industrial power driving around in low-tech vehicles.

  • avatar
    Alex Rashev

    Imagine no possessions
    I wonder if you can
    No need for greed or hunger
    A brotherhood of man
    Imagine all the people
    Sharing all the world…

    Russia started out by cloning Fiats, too. Look where it got them :) Problem is, once the “partner” pulls out, the advantages of having a giant corporation behind you are lost, and all these chinese car companies will just turn into another AvtoVAZ. They’ll still have the facilities, the models, and maybe even the experts who can keep the cars updated – only not competitive.

    So don’t worry, the worst that will happen is the chinese will take over the bottommost auto segment. Since any sane person in an “under 12k” budget situation would buy used to begin with, I don’t see it as a fundamental threat to worldwide car market. Plus, as we know, the cheapskates pay twice ;)

    And hell, even if they pull it off and become competitive, it’s not their fault. It’s ours. You can’t steal a job, it’s not like you can put it in a sack and run away. You can offer the lowest bid, though, and I don’t see anything bad about it.

  • avatar
    Steve_S

    Once you have a few generations including those in the rank and file of the military accustomed to a certain level of comfort you can not go back.

    This is my “Stuff” theory. People want stuff. Once they get stuff they want more stuff. After enough time goes by they are accustomed to having stuff and couldn’t imagine doing without said stuff. If trade gets cut with China everyone can’t get all the stuff they are used to and it makes them angry. A billion angry people with a sizeable amount in your military service does not bode well for those in power. Chinese companies and economy will become dependant on foreign commerce if it hasn’t already. Destroying your economy and sparking a revolt is not the way to stay in power. China will fall into democracy eventually because its people will demand stuff and the government won’t be able to say no without collapse.

  • avatar
    olddavid

    These “legacy costs” you so cavalierly describe as a negative, have been responsible for health care that every other industrialized nation has socialized into public single pay systems. Since when does “union” automatically become a negative? It has been in my father’s lifetime that Harry Bennett sent assassins after union leaders. That striking coal miners had to sleep in pits to avoid snipers. Please, at least give these people the benefit of the doubt before assuming that their influence is a negative.

  • avatar
    htn

    “Bob Lutz in a recent interview stated that fuel cell vehicles will likely devevlop in China since they have the resources to fund a hydrogen generation infrastructure.”

    That is just Mr. Lutz’s acceptable way of saying that the combination of environmental regulation and NIMBYism in the US makes developing a hydrogen generation infrastructure much more expensive and impractical than developing one in China. The lower cost of labor plays only a small part in the movement of manufacturing to China. Environmental regulation and litigation fears also work to stifle manufacturing in the US.

    Howard

  • avatar
    guyincognito

    What I wonder about regarding the Chinese market, as alluded to here, is wether the Chinese companies will continue to partner with the likes of GM once they have the expertise to develop vehicles on their own. I disagree that the Chinese could not eventually successfully create cars in any category and compete globally. If and when they reach this plateau, what incentive would they have to share profits with foreign corporations? And what incentive would the Chinese government have to change its unfair trade policies?

  • avatar
    allen5h

    That ROEWE front grille is soooooooo Audi. Is the Chineese govt once more looking the other way on copyrights, with an occassional five second soundbite moment with a corporate mogul about how they are going to crack down on this sh#t?

  • avatar
    NN

    The US economy is just as reliant on cheap Chinese goods (and their purchasing of US T-bills to fund our defecit) as the Chinese economy is reliant on us buying their trinkets. A trade (or god forbid, actual) war would destroy both our economies with depression-like effects, and leaders of both countries know it. It’s not going to happen.

    As a business, GM is about making money first, and flag-waving or supporting the US economy next. There is no money being made here, there is plenty of renminbi being printed in China. GM will export from China to alleviate the legacy costs it faces in the US…it may be their only way back to profitability. They are a global business. As long as they don’t compromise what little is left of their brand integrity, then it can work…god forbid a Corvette or Silverado be made in China. But an Aveo? A Cobalt? If it allowed to to drop the price $2k, maintain the quality, and make a profit…then it would be a smart business move.

    I lived in China (Shenzhen) in 2002 & 2003 as an English teacher. I saw plenty of my local colleagues striving to, and eventually purchasing, Buicks. I rode in a Sail, a GL8 (same thing as a Terraza, really), and the Regal. The Sail was, at the time, an old Opel Corsa. But the GL8 and Regal were nice vehicles–and indecipherable from the American versions. Witnessing young people aspire to Buicks was interesting, and GM is doing the right thing there.

  • avatar
    dt

    I thought the ROEWE photo showed a Pontiac concept car!
    Anyone else notice the GM “bones”?

  • avatar
    gunnarheinrich

    Let’s not kid ourselves with respect to the Cadillac uber alles thought. The only thing more prestigious to the Chinese luxury buyer or even man on the street than Mercedes-Benz is Rolls-Royce.

  • avatar
    wsn

    If you do not understand the psychology of Chinese people, the best way is to think they are the same as Americans, or anyone else in the world. The average Joe wants a Porsche, or just a Fit if he is poor. The president wants to hang on to power, even at the cost of a war. You see, all the same. The main difference is the maturity of social structure. You can view China as a startup company (huge insider control, duh; high risk, high return), while the USA as stalwart company (widely held, stable income, with occasional insider scandal).

    In terms of trade, it’s doable as long as you have what they want. Of course, you would get what you want as a return.

  • avatar
    Sid Vicious

    I dunno. I saw an awful lot of 5 and 7 series BMW’s in Shanghai, especially around the Okura hotel.

    I agree w/the comments on Buicks, though. Indistinguishable from the US counterparts, other than name.

  • avatar
    Jonny Lieberman

    1 billion Cokes a day…

  • avatar
    Somethingtosay

    These “legacy costs” you so cavalierly describe as a negative, have been responsible for health care that every other industrialized nation has socialized into public single pay systems. Since when does “union” automatically become a negative? It has been in my father’s lifetime that Harry Bennett sent assassins after union leaders. That striking coal miners had to sleep in pits to avoid snipers. Please, at least give these people the benefit of the doubt before assuming that their influence is a negative.

    That aside, it is 2006 and nobody has any concept of “snipers” going after unions.
    Fewer and fewer people each year are becoming enamored with unions, and there is a reason for that, I suspect.
    We are a long ways away from the industrial revolution, so I am not sure why some people expect massive latent public sympathy for unions.

    They almost always have a reputation for incessant loudness, a demanding demeanor, poor work ethic and inefficiency.
    Few Americans would ever love a co-worker like that–much less a whole economic sector.
    Indeed, it doesn’t help that they abound mainly in the public sector of a country that is notoriously wary of government services from experience (…and spoiled handsomely by the private sector).

    Ask around about the recent N.Y. subway strike…

  • avatar
    kaisen

    GM thinks its share in China will grow faster than the market there. GM is planning a 17% sales growth in China for 2007.

  • avatar
    dhodory

    There was a time, place and need for unions in this country — that time and need have passed. Anyone who doesn’t understand that hasn’t studied history and doesn’t understand where the US (and world) economy is (are) headed. Economic policies (or union efforts) that strive to “protect” well-paying manufacturing jobs in the face of lower cost, foreign labor amounts to a subsidy for the US workforce to remain (relatively) uneducated, providing (in the grand scheme of things) only mildly value-creating labor inputs. There is one path and one path only to continued US world market place dominance — education.

  • avatar
    Jonny Lieberman

    Dhodory,

    You also just described farming in this country. Which, unlike Unions, is federally subsidized…

  • avatar

    Regardless of how you feel about unions, the stark economic reality is it costs a lot less to manufacture a car paying someone $2/hr to turn screws than it does paying them $25+/hr plus benefits. That, along with a market that’s hungry for new cars, is what’s allowing GM to turn such a good profit in China.

  • avatar
    wsn

    The UAW would definitely benefit both Chinese and American auto workers by moving to China. As someone pointed out, there is a time, place and need for union. That time is now and that place is China. The sniper thing may very well occur again, over there.

  • avatar
    Luther

    Also it costs a lot less to manufacture a car paying a robot $0.02/hr to turn a screw than it does paying a human $2/hr.

    There is one path and one path only to continued US world market place dominance — education.

    Exactly. Specifically Math, Science and English.

    I think the Chinese Buicks are more elegent than U.S. Does anybody know what chassis the Chinese version is built on? Is it an Opel Chassis?

    http://www.buick.com.cn

  • avatar
    Alex Rashev

    Unions are a mere bar on the ladder. You pulled yourself up, now it’s time to let go, or you’ll just fall off.

    It’s like religion – it helped form solid governments early on, but as we moved out of the medieval age, religion became an obstacle in the path of progress (and is still there).

    Or how about the police-insurance-speeding triangle. Sure, the intentions were good, and at first there were good results. But look at this beast now – just a dirty money-making machine, and the last thing it cares about is your safety. You can hardly die by just speeding these days, but noone cares – because of this “public tradition”.

    So the Union is yet another needle. It was good at first, but then it turned from a cure to a narcotic. The whole picture is there – the dealers, the enablers, the users. Opium for the masses?

  • avatar
    Captain Tungsten

    Mr. Williams:

    Very interesting article. Do you believe the manufacturing capacity in Asia has advanced far enough for the big 2.5 to use it as a credible threat in next years labor negotiations? I think a tactic like that will be needed to move the needle with the union, or conversely, to make a strike survivable.

  • avatar

    Capt T,

    Yes, I think the capacity is there and they’ll start utilizing it in the very near future. China is one of the 6 locations GM will build its new Gamma platform small cars. The US isn’t. They’ll have to import them to the US from somewhere and it’ll be from whichever location can produce them at the lowest cost.

    Would they shut down a plant here to relocate production of a current model to China? I don’t think so. The political and public relation repercussions of a move like that would be enormous. However, I wouldn’t be surprised to see them eventually use a threat of producing future models there as leverage in contract negotiations.

  • avatar

    Here’s an interesting tidbit from this morning’s Automotive News:

    BorgWarner Inc. will supply its DualTronic transmission technology to Shanghai Automobile Gear Works Co. Ltd., a subsidiary of Shanghai Automotive Industry Co. Ltd. DualTronic enables a manual transmission to work as an automatic.

    This is BorgWarner’s first project for Shanghai Automotive; the technology will be used in China in the new SAIC Roewe 750

    (DualTronic is what VW and Audi have been marketing as DSG.)

  • avatar
    Joe Chiaramonte

    The Chinese market is a “free market” only up to a point, and (unless I’m wrong) every non-Chinese manufacturer involved in these joint ventures has only worked within the structure of a free market until these ventures were constructed.

    Sure, there are historical political constraints, such as union representation impacting US elections and trade deals and embargoes between nations. China has never played by the same rules. They appear to instead have opened their markets carefully, and on their own terms.

    I just wonder what the exit strategies are for the non-Chinese partners on the day the Chinese government shows them the door. If they don’t have one, it’s pretty short-sighted. For a country which places no value on intellectual property, it’s an eerily simple train of thought.

    Once car-buyers have established the habit of buying cars from China supplied by GM and others, under-cutting what we would (and no longer) produce domestically, what happens to our economy when the US government retaliates by taxing (or refusing) those imports when GM gets left in the cold? Would the government of 1 billion customers really care whether they do or don’t sell 1 million cars in the US, if they gain full ownership of their domestic auto output? I don’t like that leverage.

  • avatar
    ktm

    Joe Chiaramonte is the only one who has it right concerning the Chinese governments handling of joint-ventures and their culture’s value on intellectual property. I had to deal with those samn issues for the three years I lived in Guangzhou, China.

    However, people must remember one thing about the Chinese market: it is not a market of 1 billion people. It is a market of around 200 million people. If I remember correctly, nearly 80% of the population lives in what you and I would consider the country. These people, to this day, still use water buffalo to till their fields and live in small brick houses. I worked on a project only 10 miles outside of the third largest city in the nation and saw this first hand.

    The disparity of wealth in China is staggering, so much so that people here can not even begin to fathom.

  • avatar
    NeonCat93

    So what happens when the billion people in China who are still dirt poor start asking for their TVs, cars and refrigerators? I understand that there are a great many people who have moved to the coast to work even though they may not have the required permission (if I am incorrect about this, please forgive me, this is my understanding, not necessarily the truth). I also understand that due to traditional Chinese cultural preferences there are a lot more boys than girls. So does this mean that there are large numbers of poor, homeless men in the cities? If so, and the trend continues, the Chinese may find themselves in very interesting times, indeed.

    I tend to be pessimistic, I guess, but imagine what a large economic downturn in the global economy could bring: how about a new Communist revolution? Or even a non-Communist but nationalist revolution? Maybe like back in the twenties and thirties, everybody against everybody.

    The dragon has a tiger by the tail. They have to hope the US economy holds up to the point that they can produce enough for their internal markets to spread and develop in the hinterlands. If the US economy doesn’t hold up, the Chinese will be left holding billions, maybe even trillions of US dollars that will be very hard to spend. At the same time, they have to worry about all the other developing nations that, for whatever reason, can produce goods cheaper than China can.

    I think there are real parallels between the US and China and Britain and Germany and the US in the early 20th century in terms of industrial development. The question will be whether the US and China can learn to live and trade together like Britain and the US did, or become adversarial and go to war like Britain and Germany did. Before you say both countries have too much to lose, remember that Germany’s biggest trading partner in 1914 was Great Britain.

  • avatar
    Joe Chiaramonte

    The question will be whether the US and China can learn to live and trade together like Britain and the US did, or become adversarial and go to war like Britain and Germany did.

    The problem is, as time goes on, we will need China much more than they will need the US, even more than we do today. Chinese currency is artificially valuated, so there’s less impact for them when things go to hell in a handbasket. I smell smoke.

  • avatar
    John Williams

    SAIC is using the expertise and experience gained from their joint ventures to launch their own premium brand, Roewe, at this month’s Beijing Auto Show. Their first offering, the Roewe 750E, is based on the Rover 75 sedan. They will market it as a premium brand in direct competition with Cadillacs, Saabs and top line Buicks. SAIC plans to launch 30 new models under the Roewe brand between 2006 and 2011, and hopes to produce 120K Roewe cars in 2007.

    With the mandated joint-ventures and the degree of control China has over its markets, I would expect that sooner or later, the Chinese automakers would have learned all they could from their foreign counterparts and then have the government move in to restrict the foreigners from selling their foreign-branded wares to the market.

    One billion potential customers and billions upon billions in profits — that’s the reason U.S. and other automakers are throwing all of their eggs in the dragon’s basket. So what happens when the Chinese decide that they’ve had all the help they could get in starting up their own auto companies and close the door in U.S. automakers’ faces, with a “thanks for the help, now get lost”? How is GM going to recoup an overseas investment that’s been summarily smashed to the ground by a few actions of the PRC bureaucrats?

    The Chinese will wait until they believe their economy can sustain itself with little to no foreign help or interaction before giving foreign industry the proverbial boot. If anyone’s gonna make a mint off of a billion people, it’s not gonna be the foreigners.

    And when this happens, GM will be left in a world of hurt, especially if they decide to further neglect their own home market chasing after dragons.

  • avatar
    tentacles

    All foreign manufacturing in China is done for the Chinese market only. The BMW plant in Shengyang that produces 3 and 5 series bimmers from complete knockdown kits out of containers from Germany, through a completely automated process, is more expensive than just shipping them from Germany, tarrifs are the only reason for local manufacture at the moment. Same goes for the C class Benz which is currently assembled in the old Chrysler-Beijing Jeep plant, now owned by ze Germans. Current Chinese gummint regs do not permit foreign manufacturers to produce cars for the foreign market in China, so unfortunately, there will be no Chinese made Bimmers or Benz for the US market in the forseeable future.

  • avatar

    Jerry Weber, Glenn A, jazbo123, and Arnie. I’d like to join your discussion, but I forgot my tinfoil cap.

    Any number of doomsday scenarios can be hypothesized for China (or the U.S. or the world) so I’m not going to add my own.

    Put your money where your mouth is. Multinational corporations (auto and otherwise) have invested billions and billions of dollars in China. There are risks, but the general consensus is that the rewards outweigh those risks. Would you bet a billion dollars (or even a thousand dollars) that any of the doomsday scenarios proposed above will actually happen?

    Jonny Lieberman,
    Dhodory wasn’t describing agriculture in this country. Subsidized or not, American agriculture is hyper-productive and we all benefit from it vastly (and most of us take it for granted). I don’t have exact figures, but U.S. farming employs about 2% of our population (excluding scientists, engineers, techs indirectly involved) but produces 120% of what we consume. Net effect: cheap food for all of us.

    Manufacturing is not yet hyper-productive and unions are a big reason why. Instead of clawing and crying about keeping manufacturing jobs, we should encourage people to move on to other jobs. Imagine how rich we would all be if we can allow manufacturing to be as efficient as agriculture…

    Most U.S. manufacturing jobs are lost due to gains in efficiency (i.e. newer processes, robots, automation, etc). Great!

    Some are lost to the “offshoring” bogeyman. Not so great. But not horrible either.

    Keep in mind any job not worth keeping locally isn’t worth keeping for the new job owner either. i.e. the factory job that moves from Canton, Ohio to Canton, China will probably soon move to Chongqing, China and will then move to Kazhakistan (or wherever Borat is from) and then will move on to Albania or Tanzania or Bangledesh, whichever is poorer and possesses more desperate laborers at the time.

  • avatar
    Arnie

    This is all pretty well thought out by the Chinese. They are systematically updating their knowledge base and the West is just playing along. Let’s just look at some of what they are doing:

    A foreign automaker pretty much cannot manufacture in China without having to hand over technology to Chinese companies that are usually owned by the Government or PLA. The automakers are playing along.

    The Chinese systematically steal every patent they can find and use it to make copies. This activity is sponsored by the Government. What do we do? We grant them most favored status and let them into the WTO.

    They manufacture billions of dollars worth of bootleg merchandise every year and export it to the West. The Chinese Government turns a blind eye and Western Governments do nothing.

    The Chinese Government has a building full of hackers who break into Western government and company databases to steal tech secrets (Titan Rain). What do we do? Evidently nothing.

    This is worrying. I don’t believe for a second that the Chinese are interested in letting foreign companies take over their auto market. When they have caught up with Western manufacturers, Ford, GM and others are going to find themselves booted out of China and at the same time they will have lost their manufacturing base in America along with the rest of the market. China is “regaining” what they believe their rightful place in the world as an economic and military superpower, and they are stealing and manipulating us to do it. And we let them.

  • avatar
    Qusus

    Brilliant Arnie. You have discovered China’s conspiracy.

    And the fact that the Western Governments won’t do anything about the Chinese hackers stealing all our “tech secrets”? Well that was going to be my next point; our current administration is too weak. We won’t stand up or fight for anything. We’ve got the most advanced military in the world, but we are always too afraid to use it, and that’s the problem with the United States in a nutshell; other countries feel like they can simply manipulate us without fear of repercussions.

    It’s a good thing that experts on geo-politics who are also privy to even the most well kept secrets of both domestic and foreign superpowers read car enthusiast websites like this so they may enlighten the rest of us on these matters.

    In fact, since you seem to know so much about how the Chinese are manipulating not just our auto manufacturers but also our government might you also know where the Iraqi’s have hidden the WMDs, or who was really responsible for 9/11? If you do please post it so I can alert the Pentagon immediately.

  • avatar
    Point Given

    My biggest thought on all this is keeping or achieving strict quality control in a very foreign nation. This isn’t exactly Japan or even mexico anymore.

    I own a one dollar only store, I see tons of Chinese stuff everyday mass made cheap and fast and it is crap. I shudder to think if the same concepts are applied to vehicle production in China.

    Plant pride when you are making 2 bucks and hour vs 25 an hour would be something entirely different I would think. Seemingly, this would turn quality down a bit.

    Does anyone have any info on Chinese built vehicles regarding percieved quality and any quantifiable problems?

    Regarding NA plants, It would be curious to see the internal cost benefit analysis of keeping, keeping as heavily upgraded or restarting overseas with plants. Surely, some of GM’s plants meet the required quality and throughput to keep in NA. Highly automated, highly flexible plants using one platform to build several types of machine with only minimal downtimes must exist in GM somewhere, yet I only hear of Honda’s, Toyotas and Nissan’s plants.

    As for the union thoughts mid page. China, in some of it’s industries needs a union to fufill the industrial revolution role that was fufilled here in NA by unions. Deaths in China’s coal mines is massive vs. the rest of the world, undoubtedly conditions are bad in many industries. In NA, unions have pretty much run their course and have ceased to provide their historical role and instead turned into organized greed machine’s.

  • avatar
    Point Given

    http://www.plantautomation-technology.com/projects/nissan_canton/

  • avatar
    Arnie

    Qusus:

    I’m glad that people with contacts in the Pentagon read enthusiast websites like this one.

    I can’t see the point in arguing with you. I’m just pointing out what’s pretty obvious and is probably obvious to a lot of people. Nothing in my post is false or exaggerated and I didn’t mention the word “conspiracy.” I only said it was planned with a purpose in mind, just like the joint venture law in China obviously was. The joint venture law has an obvious purpose and I believe some Western automakers are beginning to worry about it. Pointing this out doesn’t automatically make anyone a 9/11 conspiracy fruitcake.

  • avatar
    Luther

    Manufacturing is not yet hyper-productive and unions are a big reason why.

    On the flip-side of this think about if the computer industry were unionized back in the 1950s. We would today be using i286 machines and Windoze 3.11. The fact that computer technology was free of obstructionists has allowed huuuge advancement and made EVERYBODY much, much wealthier. The computer revolution is sparking a global manufacturing revolution with the advancements in CAD/CAM/CAE systems and more specifically software physics engines. This revolution will take place around the globe were there are the lest obstructions (Gov’t taxes/regulation/labor laws). The “outsourcing” from the U.S. has nothing to do with labor costs per se but has everything to do with U.S. Gov’t obstruction. Get rid of stupid laws and lower the tax rates and you would see a manufacturing boom in the U.S. that would make your head spin. Ever increasing quantity/quality and ever decreasing costs. We would ALL be living like Millionaires do today.

    Some of you really could use some real-world economic study and not that crap we learn in High School/Newspapers/TV. You might try starting here. It is economics for adults 101. Its the anti-Keynesian.

    http://www.mises.org

  • avatar
    shivak

    And whatever else they do, they must avoid the brand dilution that plagues them in other markets.

    You understand something that Farago does not.

  • avatar

    shivak
    Huh? Did you read the last GM Death Watch? That was the point of the entire editorial.

  • avatar
    bfg9k

    That is just Mr. Lutz’s acceptable way of saying that the combination of environmental regulation and NIMBYism in the US makes developing a hydrogen generation infrastructure much more expensive and impractical than developing one in China. The lower cost of labor plays only a small part in the movement of manufacturing to China. Environmental regulation and litigation fears also work to stifle manufacturing in the US.

    Howard

    Wow, Howard, you got this right. We should go back to the days before environmental regulations and the EPA, when places like the Cuyahoga River were CATCHING FIRE due to pollutants. Let’s have some more of that kind of manufacturing industry!

    Personally, I love the Clean Water and Clean Air acts, I prefer not to witness acid rain killing our forests, and don’t want my kids growing up in choking on fumes from that good old lead-containing gasoline.

    Manufacturing has declined in the US due to deliberate government policy that pits our workers in direct wage competition against slave wages and sweatshops abroad. It’s called “free trade” which so many people seem to love even while it depresses their living standards. Environmental regulations frequently force factories to become more efficient and productive in their operations, not less.

  • avatar
    wsn

    I own a one dollar only store, I see tons of Chinese stuff everyday mass made cheap and fast and it is crap. I shudder to think if the same concepts are applied to vehicle production in China.

    Don’t think so. In fact, I believe Chinese products are of superior quality to American products. Sure you think the $1 Chinese item is crap. But then what does $1 get you from an American supplier? Nothing. Nil. That’s the very reason you are selling a Chinese item, right? You can choose to sell all American products in you dollar store, if you so believe in your logic.

    When comparing qualities, we need to compare items of equal cost. Or, if we compare cost, we need to compare items of equal quality.

  • avatar
    wsn

    I have just concluded two main points from these posts:

    1) Chinese government does not respect intellectual properties.

    2) Chinese government may close the door and use the stolen knowledge against the likes of GM, Toyota …

    I would say the two points are contradicting each other. Auto technology is about continuous improvements. I suppose GM has lots of spies in Toyota and reverse engineered lots of Camries. Yet they can only get yesterday’s know-how.

    The same goes for the Chinese government. They may close the door and use the foreign invested plants (althougth unlikely). But they cannot survive beyond one model cycle. Think about it, who will improve the cars for them?

    No one will have the motive, since there is no protection on intellectual properties. It did not happen before (remember the crappy cars from the pre-open-door era?). And it will not happen in the future, unless intellectual properties are getting protected.

  • avatar
    jthorner

    The Chinese are no dumbies. Their joint venture law essentially requires foreign companies to come in and train the home town team. 10 years from now what need will China have of GM and the rest? One stroke of the pen and the foreigners can be kicked out of town.

    Shanghai automotive got the Rover 75 design by buying the pieces out of bankruptcy.

    China counts on the short-term mentality of foreign managers and plays ’em like a harp. GM is making some money today, but what they are really doing is training the Chinese competitors.

    John

  • avatar
    jthorner

    If you think China will never be able to compete with developed nations on leading edge products, think again. Have a look at this report:
    http://memp.pratt.duke.edu/downloads/duke_outsourcing_2005.pdf

    The bottom line is that China is already graduating more technical people from it’s universities than the US is, and there is every reason to believe that these numbers are going up.

  • avatar

    Shanghai automotive got the Rover 75 design by buying the pieces out of bankruptcy.

    True. And interestingly, they also tried to buy the “Rover” name but couldn’t (Ford beat them to it). Hence the tongue-twisting “Roewe” name. If one of our Chinese-speaking readers would give me the phonetic prounuciation for that, I’d be grateful. I’ve seen it spelled out as “roo-eevee,” “ro-wee,” and even “ro-way.” Whatever it is, I wonder if they’ll come up with something a bit more anglicized when they try to enter the US market with it.

  • avatar
    Arnie

    1) Chinese government does not respect intellectual properties.

    2) Chinese government may close the door and use the stolen knowledge against the likes of GM, Toyota …

    I would say the two points are contradicting each other. Auto technology is about continuous improvements.

    —————————————-

    What? This is about getting the foot in the door. Getting the technology for free. Avoiding a long period of “continuous improvement.” You can easily compete without the latest cutting edge technology as long as you have a reasonably decent product at the right price point. When you have enough technology to compete, you should in time be able to reach the competitor’s level through your own r&d. Also, cutting edge technology is what the Chinese are after, in all sectors. Not only in the auto industry. Take a look at
    http://www.popularmechanics.com/technology/military_law/3319656.html

  • avatar
    wsn

    If you think China will never be able to compete with developed nations on leading edge products, think again.

    I’m not saying they cannot. I just said they cannot do both: 1) close the door and seize foreign properties and 2) compete with developed nations. The two things contradict each other. The current regime in China was established in 1949. Their industries were just insignificant before they finally started privatization in 1978. If they choose to revert back, the newly developed industries would be lost fast enough.

  • avatar
    wsn

    What? This is about getting the foot in the door. Getting the technology for free.

    There is no free lunch, anywhere. No one forced GM to build cars in China. It was on the table from the start, that the foreign partner provide new technologies, in exchange for market previleges. It’s buying technologies with market share and tax incentives.

    VW knew this all along. VW started building cars in China since 1980s and had 50% of the total market at one point. GM could have stayed back and let VW take the risk by itself.

    In addition, teaming up with a Chinese state owned company isn’t always bad. For instance, your cooperate tax rate is about 15%, compared to the 30+% of those fully Chinese owned private companies (such as Chery). In case of a workers’ uprising, there’s the government to put it down. The land of the plant costs virtually zero….

    In summary, tech = money. The companies just sold their tech for something other than cash; and they believe they can earn it back fast enough.

  • avatar
    Arnie

    wsn:

    That’s one way of looking at it for sure. “Buying” sounds so much better than “forcing to hand over.” Of course you are right – nobody asked GM and others to start manufacturing in China. Access to a market is not something that comes automatically. It should be paid for. How true. I guess you would then agree that the US has the right to limit Chinese import if deemed necessary? Or making Chinese importers pay for access? I think it’s a splendid idea! I like your line of thought!

  • avatar

    Jerry Weber: I have one problem with investing in China. It is a military dictatorship that practices capitalism. If there is ever a showdown between freedom for her people and continued dictatorial rule, I think the capitalism part could go down the drain. The other fear is that if the US and China get in a military showdown over any number of far eastern problems.ie. north korea, japan. taiwan, sinking one of our ships etc. all trade could stop between the two countries. Will it happen? It’s out there like a smoldering fuse and could go either way.

    I think the more trade there is between countries the more such countries will have to lose by engaging in military adventures against us, or any other trading partner. I think one of the best things we can do for world peace is to trade around the world. And I think the Chinese leaders are much too smart to abandon capitalism. It was their early, though gradual adoption of capitalism which has made that country vibrant, compared, say, to most of the former Soviet countries.

  • avatar
    wsn

    I guess you would then agree that the US has the right to limit Chinese import if deemed necessary? Or making Chinese importers pay for access? I think it’s a splendid idea! I like your line of thought!

    1) The USA does have the right and force to limit import from any country, China included.

    2) Importer from any country to any country does pay, one way or another.

    The so called “fair trade” is ultimately a balance of powers. Right now, the United State military is far superior than that of the P.R. China. Thus, I have to say I don’t see anything unfair to the States. Impose anything and what can China do?

    Eventually, this is not a conflict between China and the US. It’s between Americans who benefit from trading with China and those who lost jobs because of it. The force that keeps the trading is comprised of Walmart, Boeing, GM, etc. But certainly not the Chinese government.

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