2009: The Year Global Autos Shifted to China
For the last 100 years, the American car market and American carmakers set the pace in the global auto industry. Ford Motor Company led first, making the automobile accessible to ordinary workers, and then by General Motors, which made cars available to all market segments. Although Japanese companies such as Toyota, Nissan and Honda have also become major players on the global stage, the Japanese market was never as large and never as open as the American market for autos. Similarly, no European country has an auto market comparable to that of the United States.
In 2009, three things are happening to cause fundamental, and long lasting, changes in the way in which the industry is structured. First, the global economic and financial crisis is severely impacting the size of the U.S. auto market, cutting it by more than a third. Secondly, two of America’s “Big Three” automakers, are nearing bankruptcy. And finally, China is overtaking the United States in terms of auto production and sales; Chinese companies are going abroad picking up the pieces, hunting for bargain auto assets; while other Chinese car companies are taking leadership positions in key, new technologies.
Decline of the US Auto Market
The normal replacement cycle for vehicles in the United States creates an annual market for approximately 12 million cars. During the past 10 years, however, “zero percent” interest loans and generous lease terms have caused the “two-car family” in the United States to give way to the “three-car family,” upping annual demand to over 16 million vehicles in the process. With increasing unemployment and the lack of financing brought on by the global economic crisis, build rates are now significantly lower. During the first quarter, only 2.2 million passenger cars, buses and trucks were sold in the United States.
Demise of the Big Three
With high gasoline prices in 2008 cutting demand for SUVs and trucks, two of Detroit’s most profitable products, and soft demand generally in 2009, General Motors and Chrysler are barely subsisting on government bailout funds and are only a step or two away from bankruptcy. Although Ford has been able to avoid taking government funds, bankruptcies by Chrysler and General Motors would significantly impact its relative competitiveness. Whether they avoid bankruptcy or not, Chrysler and General Motors in the future will be slimmed down versions of their former selves and may even become mere wards of the state.
Rise of China
The China market began to grow again in March, and for the third consecutive month, more vehicles were sold in China than in the United States. “China’s auto sales in 2009 may break the 10-million barrier and overtake the U.S. as the world’s biggest automobile market,” Mei Songlin, deputy general manager of J.D. Power Asia Pacific was quoted by Shanghai Securities News as saying.
Meanwhile, China’s vehicle assemblers are shopping abroad and picking up bargains in the global auto industry. Geely has bought a drivetrain transmission supplier in Australia (Subscription Required); Weichai acquired a French maker of diesel engines and gearboxes; and Beijing Automotive Industry (Holding) Corp. (BAIC) is said to be eyeing assets of both Chrysler and parts maker Delphi. In fact, rumors have it that BAIC has been allocated 10 billion yuan ($1.45 billion) to make acquisitions abroad. Expect to see more deals in the weeks and months ahead.
Lead by BYD, China has decided to ride electric vehicle technology to global leadership in autos. As reported by MTD in a prior article, BYD intends to become the world’s leading automaker by 2025, powered by its battery technology, electric vehicles and Warren Buffet’s support. Other local car makers such as Chery are also developing their own versions of electric cars. While it may be difficult for up and coming Chinese car companies to compete in traditional products, new technologies level the playing field and give them an open road ahead.
Make no mistake, the center of gravity in the global auto industry is now making a hard shift to China. The auto industry as we know it will never be the same.