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Chinese Auto Industry Attracts Major Manufacturers - 2004-04-22


The world's major automobile manufacturers are pouring money into China these days, working out joint ventures with domestic automakers to satisfy the exploding Chinese middle class desire for personal transportation.

China's auto plants pumped out over four million vehicles last year, but the industry is far from meeting the demand of the domestic marketplace.

But when they do, say a number of industry observers, China will turn to exporting autos and that will bring a major new and worrisome element to the global car business.

The Detroit bureau chief of Forbes magazine, Joann Muller, says many industry executives are overly concerned that low manufacturing costs will make Chinese cars ultra-competitive.

"Right now, China's cost of doing business is not really that cheap," she said. "While their labor is indeed very cheap, there are a lot of other costs that are quite expensive in China. They don't have the infrastructure yet that is needed to support big industries."

Ms. Muller cites electric power shortages and a lack of a highway network to transport vehicles as two shortcomings. But she says, that will change quickly with all the capital being poured into China.

Even with a modern infrastructure, China faces a significant gatekeeper to selling their cars in the U.S. in the form of the United Auto Workers union.

"They [the UAW] have very delicate labor agreements with these companies in the United States and it would be really foolish for somebody from one of the Big Three [GM, Ford and Chrysler] to say, oh yes, we're going to start building cheaper cars in China and bringing them here," explained Joann Muller.

But, says Ms. Muller, General Motors already is planning a sales venture going in the opposite direction with their luxury brand.

"They [GM] have really started to adopt a global view of all their operations," she said. "And they, in fact starting this year, will start exporting cars from Michigan to China. These are going to be Cadillacs."

Forbes' Detroit bureau chief says such moves, if they succeed, could chip away at United Auto Workers' resistance.

"If there's enough of that give-and-take, you know, then the UAW might be more inclined to go along with this idea of cheaper Chinese cars coming here," said Ms. Muller.

However, before China launches its auto effort on American shores, predicts Joann Muller, we'll see them first doing business in Indonesia, or Australia, perhaps as early as the next two or three years. And then?

"I think it's probably, maybe ten years before we'll actually see a Chinese-built car in the United States, but I do think that day will come," she commented.

Forbes' Joann Muller says China has learned the lessons of first the Japanese and then the Korean carmakers' success in the United States: start small, give good value for the money and build a customer base.

The prospect of yet another major player arriving in this ultra-competitive marketplace has auto executives from Detroit to Stuttgart and Toyoda City tossing in their sleep.

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