How China Matters to the U.S. Auto Industry

With six months of sales figures in the books, China is now almost certainly the world's largest auto market. The final results won't be tallied until next week, but the forecast is for about 6 million sales there as opposed to under 5 million here. And the chances of the U.S. overtaking China during the second part of 2009 are about the same as for the Toyota Prius overtaking the Ford F-150 as this country's best seller — slim to none.

Of course, this only makes sense. China's population is about four times that of the U.S., and the vast majority of its citizens have never owned a car or truck before. Further, the Chinese government — which is more used to operating by executive fiat than giving away its OEMs to Fiat — is proactively manipulating its policies to boost auto sales in the country. (Yes, I know an argument could be made that that's what Obama and Co. are doing too, but the Chinese can do it a lot more effectively since they don't have to worry about pesky little things like democracy.)

From a global perspective, the auto optimists are whetting their appetites for the time when they can cash in. Look at General Motors: Folks at the General have pinned so much of their hopes on China that they made Buick one of their core divisions here. And they're spending who knows how much money on rehabbing the brand via cars like the new Buick LaCrosse.

This is definitely a nice-looking vehicle, but, just as definitely, GM doesn't know what to do with it: Is it an American alternative (competitor?) to Cadillac? Is it going to bring a new approach to fuel efficiency to the near-luxury segment, thanks to an available four-cylinder engine? Or is it merely going to suck up resources that could better be spent on improving other GM divisions that are more likely to attract big numbers of customers?

Anyway, the idea is that if U.S. Buick could just acquire some of the momentum being shown by China Buick, everything would be okay. I mean, sales of Buick vehicles jumped 34 percent in China over the first half of 2009. On the one hand, that's a bit below GM's overall, record-breaking results in that country for this period. On the other, well, Buick sold nearly 200,000 vehicles in China during the first six months of '09; in the U.S., that number was, uh, 47,223.

But you know, the more I think about China, the more I think any U.S. OEMs — really, any non-Chinese OEMs — are going to be in for an unpleasant surprise. That is, I'm betting the world's new No. 1 auto market is going to be a lot more like the No. 3 market — Japan — than the U.S. market.

In other words, it will be an industry dominated by homegrown OEMs, with significant barriers to success for other makers, and a powerful presence outside its own country.

That's because one must keep in mind that, despite the apparently positive results for companies like GM and Volkswagen in China, every foreign OEM operating in China has to do so in a joint venture with a Chinese company. This has two important effects: First, it gives Chinese companies a crash course in how to build quality vehicles. Second, it keeps the Chinese government even more securely in control of its home market.

So, considering we know that Chinese automakers desperately want to start selling in other markets — and will soon have the quality to do so — and that the Chinese government is going to make sure its domestic market is effectively controlled by domestic companies — do not doubt this for a second — my advice for GM, Chrysler and Ford is simple: Start worrying more about competing against Chinese automakers here and less time worrying about competing with them there.