The current volume of cars purpose-built in China for duty
in the West (i.e. Europe and North America) may only be a trickle, but you can
certainly expect it to grow. The sourcing of parts, components, and even drive
trains from China has been practiced by our domestic automakers for years, but
as foreign investment in China's fledgling industry grows, we are sure to see
more and more of "our" cars with the token "Made in China"
sticker under the hood.
The significance here is not that we have to start worrying that our Mercedes-Benz is a complete fake (though the country has proven that it is capable of that both in terms of ability and gall). Rather, most of the largest companies have begun to lay down roots in the country with the aim of, yes, building unique cars destined to stay right there in that market, but also assembling carbon copies of their North American vehicles for export back to our shores.
The natural hedge created by foreign automakers to avoid some of the currency pitfalls by building plants and cars in the US is a model that is also supported by the fact that they are operating directly in their largest target market. It doesn't take a Fulbright Scholar to realize that all this investment suggests they too may one day be the largest market.
Even if China's own demand for Western-type cars is still some way off, the current efficiencies and cost structure there warrants setting up shop. A recent article in the New York Times stated that the average wage earned by a North American auto factory worker was roughly $55/hr. versus a paltry $1.50 for the Chinese equivalent. And this says nothing of healthcare, unions, or pensions.
So why haven't all the domestic manufacturers already mothballed their factories here and made reservations on the next flight to Guangzhou? Well, there are several reasons. For starters, the utility of bicycles still far outweighs that of cars for the general population. The number of end users there is still relatively small, with only about 3 million in total annual domestic sales compared to roughly 18 million in North America.
Also, there are some questions as to whether the infrastructure, one-party political system, and environment can handle such explosive growth. Having seen domestic margins and profits drop faster than Bush's approval ratings, foreign investors have largely stayed on the sidelines with regard to investing in the Chinese auto companies, and Hong Kong dragged its feet where listing them on the exchange is concerned.
The last issue is an equally intangible one. Many North Americans simply don't want a car built in China. Maybe we should call this the Wal-Mart effect. To over-generalize for just a moment, China has a deeply embedded reputation for supplying the world with cheap junk and knock-off goods, usually of little or questionable quality. Historically, much of the sourcing for the domestic automotive industry has gone on "behind the scenes." Chevy has enough trouble moving its old push rod V6, never mind letting the "Heartbeat of America" know where it came from.
Regardless, the writing is on the wall. This certainly wouldn't be the first time outright cost won over North American consumers in the end. And while the ideals of buying "American", or German, or Italian, or Swedish have long gone out the window, people are going to be looking for additional reasons to purchase one brand over another. As has been the norm since the auto industry began, cost is the first thing you notice, even before quality. Whether or not cars will eventually flow out of China with volume and vigor of the Yangtze is becoming less a question of "If" and more a question of "When."
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