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July 21, 2005

Rarely is the Question Asked: Is Our Auto Industry Learning?

Watching Japan rocket past our auto industry was bad enough, but is China poised to follow suit?

they have initiated new fuel economy standards for cars and trucks sold in China. The first phase of the standards went into effect this year and range from 38 miles per gallon for the lightest cars to 19 miles per gallon for heavier trucks. In 2008, the standards will increase to 43 miles per gallon and 21 miles per gallon, respectively. Because the Chinese standards apply to each individual vehicle, rather than a vehicle class average as in the United States, American automakers may struggle to sell their vehicles, especially oil thirsty trucks, in the Chinese market. China is not stopping with efficiency requirements. They are also purchasing hybrids from abroad for immediate use and developing their own hybrid and fuel cell designs and manufacturing capabilities for the future.

If this goes as promised, American automakers may lose their ability to effectively compete in China's market, but Chinese automakers, powered by huge domestic demand and government investment, might get very good at building very cheap cars very quickly. If they're also able to develop top technology, they'll be a real force. Meanwhile, Ford is licensing hybrid technology from Toyota, GM is basically waiting for imaginary fuel cells, and the Japanese makers are perfecting their homegrown engines.

We're falling behind. Again.

July 21, 2005 in Big Business | Permalink

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Comments

Ezra,
The issue here is the globalization of the world economy and especially labor costs of manufacturing. Why would anyone think that cars would be any different than TV's or radios?
Each country now has a comparative advantage. Ours is high tech, inventions, and food production just to name a few. However, inexpensive manufacturing labor is not one of them.

Posted by: Robert Zimmerman | Jul 21, 2005 3:37:43 PM

Excellent title.

Posted by: Kriston | Jul 21, 2005 3:41:34 PM

I know that Chysler and GM have big joint manufacturing facilities in China, and Ford probably does as well. It will be interesting to see them complying with Chinese standards while telling the Congress that they can't do it here.

Our Big Three is destined to become the little 3 (or two, one or zero) since they seemingly are fascintated with self-immolation. No management foresight. No risk taking. Focus on quarterly earnings. Gimmicks over sustainable advantage. Detroit styling versus LA styling (that nearly all the winners use).

R.I.P. Better vehicles are being produced in the US by non-US firms. Isn't that something to think about?

Posted by: JimPortlandOR | Jul 21, 2005 4:48:04 PM

My family are long time GM stock holders (thanks to my grandfather). My mom and I were recently discussing the head thumping stupidity of GM (and by extension the other American car makers). It isn't even a question of Is They Learning?, but Will They Ever Learn?. This is EXACTLY the same dumb ass problem they found themselves in during the late 70s and most of the 80s. An over-reliance on massive, gas-guzzlers and no investment in new technologies, then WHAP, gas prices spike and the market changes. But do the Big Three change their market strategy? Nope they just lay off a shitload of workers, slash retirement benefits (my mom is understandably worried that my grandparents are going to lose their excellent health insurance), then they start attacking the WTO with all the ruthlessness of an anarchist at McDonalds. Count on it.

Posted by: Chris | Jul 21, 2005 5:22:52 PM

It'll be interesting to see if this gets taken to the WTO, and if it is, which way it goes.

Posted by: Ginger Yellow | Jul 21, 2005 5:46:03 PM

Its easy for China to outcompete us, even if we had been making better cars already: they have no unions or pensions to worry about. At least yet. For a socialist society they sure have a lot of pure capitalism going on.

Posted by: Steve Mudge | Jul 21, 2005 11:38:04 PM

It's not that long ago Ford and G.M. were reduced to junk-bond status.

Posted by: opit | Jul 22, 2005 1:10:00 AM

Chris nails it. I grew up in The City Formerly Known As Motown, and when I first heard about Ford's hybrid licensing deal with Toyota it really took me back to the 70's, when the defining trait of every Big Three employee you spoke to -- shop rat, engineer, or manager -- was incredible complacency and smug contempt for those shitty little rice-eating cars from Japan.

Management really screwed the pooch here, but I think the UAW should long ago have tried to take a more active role in production decisions. In the long run, their endless rearguard action against any kind of environmental or fuel economy restrictions will be seen as short-sighted and self-defeating. Why the hell isn't Toyota licensing Ford hybrid technology?!?!?

Posted by: sglover | Jul 22, 2005 10:42:22 AM

I think the UAW should long ago have tried to take a more active role in production decisions.

Marx would have really liked this quote.

Posted by: Robert Zimmerman | Jul 22, 2005 11:07:29 AM

Robert -

"Ours is high tech, inventions, and food production just to name a few."

Except that India is pushing into our high tech, Japan is cleaning our clock with inventions (unlike in the 80s when they would take our stuff and make it better), and our food production industries could be swamped by Africa if they ever start working together. And the first two of these are "small employment" industries that don't employ the numbers of people that manufacturing does, while food production's high employment is mainly in migrant workers.

"I think the UAW should long ago have tried to take a more active role in production decisions.

Marx would have really liked this quote."

Marx would have liked the idea of the workers rising up and casting off the management altogether. On the other hand, if the UAW had made it part of their contract negotiations that the auto companies diversify more instead of just doing the same stuff over and over again, and making the same damn mistakes, a lot of their people wouldn't be losing their jobs right now.

Posted by: NonyNony | Jul 22, 2005 11:38:50 AM

Marx would have really liked this quote.

Yeah, and I also think children should go to school, instead of factories. Marx like that one, too -- look it up, it's part of his ten-point program in the Manifesto.

I mean, does your line count as an argument, wherever it is you live?

Posted by: sglover | Jul 22, 2005 1:09:14 PM

Where does the UAW lose involvement in the mfg. of automobiles? Do they control the japanese companies in the USA? How about Japan? and if not, what is the difference in earnings for the company?

Posted by: J Reynolds | May 7, 2007 6:02:40 PM

R.I.P. Better vehicles are being produced in the US by non-US firms. Isn't that something to think about?

Posted by: Juno888 | Jun 22, 2007 4:38:31 AM

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