China's production of motor vehicles

Back in 1982 the Chinese Premier declared 'it is great to be wealthy' and that the growth of China would take place on the back of development of the motor vehicle. In 2007 there were 22 million privately owned motor vehicles in China. That is roughly 2% of the population owns a motor vehicle. Imagine if 20% of the population were to gain ownership of a motor vehicle. That would represent more privately owned motor vehicles than for the entire population of the USA.

Of course this is not a game of 'mine is bigger than yours'- well maybe it is, however, the implications are significant. Over the next two decades China's demand for oil, if it continues to power motor vehicles, will outstrip the demand of the USA and several slightly smaller nations. This means for every dollar a non oil producing nation offers to purchase oil; China will be able to offer two dollars.

It also means China has a huge, in-house testing lab for the development of motor vehicles. Leaving issues of quality aside, as the Japanese, Koreans and Taiwanese have shown us, poor quality is only a temporary issue, China has the potential to become the world's leading producer of motor vehicles. It's own population becomes its R & D laboratory. Imagine the impact on world motoring were China to take the lead in the development of a motor vehicle that did not rely upon fossil fuel. All of that research for motor vehicles would then spill into their manufacturing sector.

Around 600,000 people in the USA are employed directly in the manufacture of American motor vehicles, at GM, Ford and Chrysler. Many of them represent the last generation of American auto makers. The majority of the next generation of workers will be employed by Asian manufacturers. Will they be able to compete on cost with the Chinese? Will the American manufacturers be able to maintain their outpost plants in places such as Australia? I believe the bells are tolling. China doesnt need to export cars to America, it can manufacture them there, alongside other Asian manufacturers or it can choose to export everywhere else except the USA. Either way it represents a stranglehold on the American-made car industry. Even though USA manufacturers are present in China, in joint partnerships, their time there is limited and eventually competition for other Chinese manufacturers, not dependent upon foreign investment, will force them out - or the wealth of the Chinese manufacturers will enable to eventually purchase ownership of the likes of GM, Ford and Chrysler. Twenty years ago, in 1988, Lee Iacocca stated that China's road to motor vehicle domination would be a very 'long haul'. In hindsight he must be thinking that two decades is a very 'short haul'.

The USA has not only dominated the vehicle market for most of the past 100 years it has also benefited from the spillover of technology into the consumer market in areas as diverse as robotics, computerisation, gps, electronics and lighting. A loss, by the USA, of motor vehicle R & D will impact directly upon R & D in many other fields. While some of this R & D has already been taken up by the Japanese and Korean vehicle manufacturers, it is likely the Chinese will garner that which remains with USA manufacturers.

Chery, the Chinese car manufacturer has been in business for only one decade. In 2007 it produced 250,000 cars for the Chinese domestic market and exported a further 125,000 cars. In 2008, domestic production rose to 350,000 units while exports slipped slightly to 100,000. China is predicted to produce 11 million light cars in the next twelve months, compared to 10million in the USA and less than 1 million in Australia.

What might be the impact upon Australia? The demise of American manufacturers GM and Ford will impact upon both imports and exports. The dominance of Chinese auto parts manufacture will place price pressure on current suppliers. Chinese manufacturers may be able to produce a vehicle and deliver it already assembled into the Australian market for less than it would cost to manufacture it in Australia.

Australia provides much of the iron ore needed by China and will into the foreseeable future. The more Australia charges for iron ore the more it costs to produce a motor vehicle. Without competition from domestic manufacturers, Australia could find it spends more money purchasing motor vehicles than China spends purchasing iron ore. On the other hand China could purchase Australian iron ore and then ration the export of motor vehicles to Australia.

It is possible, and likely, Australian motor vehicle manufacturers will increase their exports into China. All three major manufacturers have demostrated an ability to export high quality vehicle, even into Japan and America. The new rich of China's middle class will provide excellent opportunties for such exports. Of course this means that the potential to export to other countries is always present, including India and Latin American nations.

Approximately 30,000 people are employed in motor vehicle manufacture in Australia, the majority at GM Holden and Ford Motor Company. Many of those jobs will be under threat over the next two decades as the level of domestic manufacture declines. Fortunately projected labour shortages will likely provide alternative employment. It is likely manufacturers will recruit less and less people allowing natural attrition to keep labour costs down. While less people may be employed in the sector, overall the potential for the sector to engage in exporting remains positive. While the impact of China as a vehicle manufacturer will affect every motor vehicle manufacturer, it will still be some years before Chinese domestic manufacturers will be able to satisfy demand by the Chinese domestic market - how many year? A lot less than Lee Iacocca might have envisaged.