Posted on 11/14/2003 5:36:53 PM PST by Brian S
By Tim Johnson Knight Ridder Newspapers
SHANGHAI, China - Workers at the Shanghai General Motors plant build new cars around the clock. They toil hard and work fast, but they simply can't produce enough. Demand for cars in China is too high.
"It's just phenomenal," said Daphne Zheng, the director of public affairs for General Motors' operations in China. "The market is growing explosively."
Automakers are revving production as hard as they can. Many plants run 24 hours a day, and virtually every global auto producer is announcing huge new investment in China. China will overtake Germany this year as the world's third largest auto marketplace, and may surpass Japan within four or five years.
China cautiously welcomes the wave of foreign investment in the auto industry, but clearly hopes that its own companies will snare a major share of the business - perhaps becoming global competitors.
Foreign automakers must ally with Chinese companies in joint ventures to operate in China. Even so, they're pouring money into the country at stunning rates, determined to get in on a passenger-car market that's growing 50 percent to 60 percent a year. Top automakers worry that they may slip in the global rankings of auto producers if they fail to grab significant share of business in China.
"This is like the gold rush in the United States or the diamond rush in South Africa," said Jia Xinguang, chief analyst with the China National Automotive Industry Consulting and Development Corp.
Demand is so great that Detroit's Big Three automakers announced this week that they will ship new cars to China to complement production from plants that are unable to satisfy customer demand. Auto showrooms commonly tell Chinese customers they must wait months - and even up to a year - for their new cars.
"There's only one show in town in the world auto industry, and that's in China," said Michael J. Dunne, founder of Automotive Resources Asia Ltd., a consultancy based in Bangkok, Thailand. "Money is just gushing."
Chinese incomes have grown, and the Chinese have a huge appetite for consumer goods. Many bought refrigerators and television sets years ago, and now they shop for cars, drawn by more models, lower prices and easier financing. In 2002, vehicle production surpassed 3 million units, and this year it's expected to reach 4.3 million, about half of them passenger cars, the fastest growing segment of the market. The rest are trucks and buses. A slowdown isn't expected for years.
While the boom is bringing mobility to those who can afford cars, it's also clogging roads and worsening pollution in a nation that already has some of the world's dirtiest air.
Per capita income in China remains below $1,000, but huge pockets of wealth have been created in urban areas. A surprising number of the cars flying out of showrooms are luxury vehicles. About 30 percent of the cars sold in China cost more than $30,000, an extraordinary percentage for a developing country.
General Motors said this month that it would produce Cadillacs in China, and BMW already rolls luxury sedans out of its plant in the northeastern city of Shenyang. Audi coupes are major sellers, and Mercedes-Benz plans to build luxury sedans here.
In some ways, China's automotive industry remains primitive. At least 123 companies produce vehicles here, many of them making fewer than a thousand trucks or buses a year. Twenty-seven companies produce passenger cars, most of them in alliance with foreign companies. Analysts foresee a period of bankruptcies and mergers.
The edge is likely to go to companies such as Volkswagen, General Motors and Honda, the market leaders, all of which operate world-class plants in joint ventures with Chinese companies. However, analysts say some domestic car companies, especially those that make compact cars, such as Wuhan-based Chery, present a long-term challenge to the big automakers.
At the Shanghai GM plant, workers in blue and white uniforms staff an automated production line that pumps out Buick Regals, Excelles and GL8 vans. To meet the soaring demand, the plant added a third shift in August.
"We rotate shifts every two weeks," said Ni Wei, a 22-year-old worker. "I really like my job, but it's very tiring."
Major global automakers are determined to expand their market share.
"For GM to remain a global leader in the industry, we've got to win in China," said Zheng, the General Motors spokeswoman.
Ford, the world's second largest automaker, last month announced plans to invest $1 billion to boost production of its vehicles from 20,000 units to 150,000 units annually. Ford entered China in 1996, but had problems with its joint-venture partner and is widely seen as trailing other automakers.
Such problems aren't unusual, as foreign companies' joint-venture partners can establish separate ventures with competitors. Friction is common, and so is piracy of technology.
China this week agreed to relax restrictions on auto imports and let the Big Three companies send new vehicles to the country.
The agreement, signed Wednesday in Detroit, allows GM to bring in 17,500 partially or fully assembled vehicles. Ford will be permitted to import 5,250 vehicles by the end of 2004, and DaimlerChrysler will bring in about 4,500 Chrysler and Mercedes-Benz vehicles.
The move will help U.S. companies compete with other global automakers.
One of the most aggressive companies is Hyundai, which saw its first Sonata sedan roll off its Beijing assembly line only 11 months ago. This year, it will produce 55,000 units. By 2005, the South Korean automaker plans to build 300,000 cars in China, and by 2008, about 600,000 cars a year. The huge expansion is part of its goal of rising from the seventh largest to the fifth largest automaker in the world by 2008.
Even as car prices drop, automakers enjoy fat margins. When the Hyundai plant opened, 10,000 people applied for production line jobs that pay as little as $475 a month.
Some analysts worry that automakers are overbuilding, creating conditions for a glut. Others say excess capacity may allow global automakers to build cars in China and export them.
It's clearly what China wants. Not only have officials stipulated that local automakers must control half the market by 2010, but they also demand the sharing of technology, hoping Chinese companies will rise on their own.
"The Chinese have in mind to do what the Koreans and the Japanese did before them," Dunne said.
USA take notice. The real money is in parts.
Thanks for destroying my Friday-night fantasy! :)
You are right. We had better stick to technology. That's a pretty good future.
Yep. Just remember: the country that actually makes the cars will be the one that can afford to buy the oil.
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