This week marks the beginning of the iconic NAIAS or Detroit Auto show, which has been one of the "majors" on the auto show circuit for over half a century. While globalization has permanently transformed the industry to the point where it is no longer accurate to portray oneself as simply "domestic" or "foreign," the effects have taken an obvious toll on Detroit's manufacturers.
The Detroit auto show may no longer be "the masters" but it still garners the attention of say the "US Open." Good, bad or otherwise, what happens in the North American, matters everywhere. At least for the moment.
The collapse of GM and Ford relative to the unbounded success by some of the Asian and European companies has taken up "page one" for more than a year now. There has been another story kicking around however, which threatens to become so significant that all of our collective talk about SUVs, fuel efficiency, or outsourcing and the demise of the Big Three simply won't make a difference.
The question is with China and has changed somewhat recently from "if" they become the potential powerhouse of the world to "when." Some domestic hiccups in their economy have slowed the media's sensationalism a bit, but many like to still guess when they may hit their industrial stride.
The reason they like to talk about this so much, well for starters, we have the basic empirical facts. For example, China's current population is greater than North America, South America, the entire European Union, and Japan…combined. Current projections say that 19% or about one in five Chinese residents lives in the "zhong chan" or middle class. This number could grow to roughly 40% or 520 million by 2010.
Now, there has been some discrepancy in what is defined as "middle class" and the country has considerable internal development to experience before they have the ability to compete on the worldwide stage in the most complex industries like computers or automotive, but it is very apparent that they are for real
It is not everyday you can add several hundred million people to your target segment.
A closer analysis of the population indicates that the country itself uses less than 60% of their GDP domestically versus a world average of nearly 80%. Additionally, more than 30 million people in China are still living in poverty. That number equals the number of inhabitants of California or the entire country of Canada. Boiled down, it means that China is making headway outside of their borders and hasn't even started trying yet.
While they do have to first concentrate on establishing their domestic equilibrium, once up and running they have incredible potential. Should this continue into all industries including automotive, they single-handedly have the ability to turn the Detroit Auto Show into the equivalent of your local club championship.
General Motors used the backdrop of the auto show to announce that they have taken over Volkswagen as the number one auto supplier in China. The news is interesting, but because the market is still relatively small and the fact that GM is still reeling from the state of their domestic operations, it has gone largely unnoticed. That each maker is selling half a million cars already in China however, is promising.
Ironically, adopting the foreign-based business model (in China) that the Asians and Europeans used to succeed in North America may be the key to GM's subsisting as a company overall. And who could blame them for trying. They are very familiar with the competitors. In fact, the only new ones are Malcolm Bricklin and the other, other GM, Chinese company, Geely Motors, which has less than 5% of the domestic market.
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