AMERICAN automakers see China as the world's biggest growth opportunity, even though the country's auto sales boom has slowed in 2004. þþDespite the slowdown, China propelled General Motors' Asian operations to earn more than G.M.'s three other geographic regions combined in the third quarter. While that was partly a sign of the company's struggles in the brutally competitive landscape in North America and Europe, it also explained the industry's bullishness on China. þþAuto sales grew more slowly in China mainly because the government took steps to temper the overheated economy, including tightening credit policies and reducing its own vehicle purchases. Sales of cars and small sport utility vehicles, which rose more than 80 percent in 2003, are expected to rise less than 20 percent this year. þþAuto executives said this cooling was expected and necessary, and would not diminish the long-term allure of China. Analysts are forecasting stronger, if less overheated, numbers next year. þþÿThe long-term fundamentals still remain very positive,ÿ said G.M.'s chairman and chief executive, G. Richard Wagoner Jr., during his company's quarterly earnings conference call in October. ÿComing off the boil in the near term is not necessarily a bad thing. The last thing in the world we want is this market to overheat and go through a boom-bust cycle.ÿþþKen Zino, a spokesman for the Ford Motor Company, said, ÿWe haven't changed our position that it is a significant and growing market.ÿþþDespite the sales boom in recent years, only a minority of the Chinese population own cars. Chinese vehicle sales, including passenger cars and larger vehicles like vans and buses, are expected to reach about 5 million this year, less than one-third the more than 17 million vehicles sold in the United States. Some analysts predict that sales in China will as much as double by the end of the decade. þþIn addition, automakers see potential for fatter profits as the country's expanding middle class trades up from small cars, like a popular version of the Volkswagen Jetta sold in China, to somewhat larger, higher-margin vehicles, like the Volkswagen Passat or the Buick Regal. þþÿA lot of people buying Jettas will upgrade in two or three years,ÿ said Yale Zhang, an analyst at CSM Worldwide. ÿThis is a big mainland country so they like something bigger, but not so much bigger like the Ford F-150 - some reasonable big sizes.ÿþþPaul Ballew, the chief industry sales analyst for G.M., said: ÿAs vehicles become more affordable, people are buying up. In the U.S., that's the growth of the luxury vehicles. In China, it's growth in midsized sedansÿ and larger small cars, he said. þþIf China represents a huge growth opportunity, it is far from unfettered. Foreign automakers are required to pair up with domestic companies, a situation complicated by accusations of piracy against some Chinese companies. For example, the Chery Automobile Company, one of China's largest automakers, has been accused of mimicking the designs of General Motors and Volkswagen. Demand from China's rapidly growing industries is also driving up prices of commodities like steel, increasing automakers' costs. þþAnd from a regulatory standpoint, China is another pressure point on the industry to produce cleaner cars. This year, the Chinese government imposed its first fuel economy regulations, a development that automakers greeted unenthusiastically. þþBuying cars on credit is in a nascent state in China, and foreign automakers are just now setting up lending operations. The government is also faced with soaring fatalities as the number of automobiles increases, a situation that could lead to more regulation. þþStill, the allure involves more than sales. China is the new Mexico: Labor costs are a tiny fraction of those in the United States - low enough that they are putting pressure even on plants in Mexico.þþIf Chinese cars are not yet being exported, auto parts are, and suppliers around the world are facing the choice of shifting at least some of their operations to China or no longer being competitive. And the labor pool is not limited to factory workers. þþÿOur pool of available talent gets much deeper if we think globally,ÿ said J. T. Battenberg III, the chairman and chief executive of the Delphi Corporation, one of the largest auto suppliers, in a speech this year.þþDelphi has been rapidly expanding its operations in China and recently broke ground on a research and development center in Shanghai.þþÿChina's Ministry of Education reported 700,000 engineering and technology graduates last year,ÿ said Mr. Battenberg, adding that ÿthe U.S. graduates only 62,000 engineers each year.ÿþþWith the United States hemorrhaging manufacturing jobs, it is no surprise that union leaders do not share his enthusiasm. þþÿWith the rise of China as a major auto-producing country, being competitive means compensation as low as a dollar an hour, no independent union rights and broad government intimidation of the pursuit of workers' legal rights,ÿ said Ron Gettelfinger, president of the United Auto Workers union, in a recent speech. ÿThese conditions have become the new standard of competition for companies around the world, to the detriment of workers everywhere.ÿþþþþ
Source: NY Times
