Detroit’s Next Big Problem… And Japan’s, Too

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Would you buy a Chinese car?

The “Western” automobile industry – our guys, the Europeans and even the Japanese – are praying to the Motor Gods you won’t want to. Detroit is already reeling from high labor costs and declining market share; the Japanese have their own problems – including the tsunami’s aftermath (temporary) and (not so temporary) the fact that for the most part they’ve become like Detroit in the sense that their cars are no longer high-value/low-cost but as or even more expensive than the American stuff. Ditto the European makes. Most are high dollar; few get high gas mileage.

The industry, as it exists today, may be about to face a perfect storm – a vortex of high (and rising) fuel costs, inflation, a weak economy and high unemployment… tailor-made for El Cheapo Specials from China (and India, too).

These vehicles will range in price from about $7,000 (maybe less) for a small, economy-oriented family sedan to around $18,000 for a mid-sized crossover SUV. That would be about 30-50 percent less than the sticker prices of equivalent in size/features American-Japanese-European vehicles.

One Chinese company – Chery Automobile Co. – says it hopes to sell as many as 250,000 of them in the United States within a few years from now, selling them through a network of 250 dealerships. The company plans to have a complete lineup of 18 separate models competing in every category/niche – with projected annual sales of more than 1 million units.

Wal-Mart new car pricing – and volume – may soon be coming to a dealership near you.

A Chinese autoworker earns the equivalent of about $2 per hour – vs. $60 per hour, on average, in wages and benefits earned by an American autoworker. That alone gives Chery Auto (and other Chinese car companies, of which there are at least six at present) a tremendous competitive advantage – shaving thousands off the cost of building a car relative to what it would cost to do the same job in a U.S. plant. (General Motors estimated, pre-bankruptcy, that its union/pension obligations alone add about $1,500-$2,000 to the “build cost” of every new vehicle – and pointed to these add-on costs as part of the reason it went bankrupt.)

But the real advantage the Chinese car companies have is the absence – or near absence – of cumbersome and expensive-to-comply with occupational safety and health and environmental regulations in China. Regulatory compliance costs boost the price of every U.S.-built car substantially – although these costs are hidden from the consumer and simply folded in to the car’s sticker price. The exact figure varies depending on whom you ask, but the industry consensus is that keeping Washington happy adds anywhere from 10-15 percent to the bottom line cost of every new vehicle built in this country.

But in China, it’s still very much like it was in the U.S. circa 1950 – good times for industry, with environmental/worker safety rules and regulations taking a back seat to the mission of stamping out as many cars as possible as efficiently – and inexpensively – as possible.

While it’s true that Chinese-built cars, like any cars sold in the U.S., will have to meet federal emissions (and crash-impact) standards, the cost of such things as polluted air in Guangzhou are not reflected in the sticker price of a Chinese-built car shipped to the United States for ultimate purchase by an American consumer – unlike its U.S.-built counterpart.

Some industry analysts think these cost/price advantages will be offset by the poor quality of Chinese-made cars relative to American, Japanese and European vehicles. Some even dismiss Chinese-built cars as oriental Yugos – pointing out that the cars being built in China at present have been found to have as many as 374 problems reported per 100 vehicles vs. the current industry average of just 118 problems per vehicle for “name brand” vehicles.

But while the expected low quality of China’s first generation of cars will probably keep them on the periphery of the U.S. market for awhile, it’s worth recalling the case of Hyundai . The once-mocked Korean automaker is now a major player in several segments of the U.S. market. Hyundai’s first-generation cars were also Pinto-esque, but that changed very quickly. Indeed, almost overnight. Today, Hyundai has some of the highest customer satisfaction ratings in the business – and its low cost/high value business model has cut deeply into segments that were once “owned” by the domestics and, even more tellingly, the Japanese.

Speaking of which: The mainline Japanese automakers were also once dismissed as purveyors of low-quality crap cars that most American buyers would never consider. I’m 44 and “made in Japan” was synonymous with junk when I was a kid.

Who’s laughing now?

Dismissing the incredible potential of China’s automobile industry may be whistling past the graveyard.

The Chinese are as committed to penetrating the U.S. market as the Japanese and Koreans were before them – maybe even more so. And the Chinese have those built-in advantages of far lower worker/regulatory compliance costs to give them a leg up on the competitive ladder.

According to auto industry analyst Maryann Keller, “The Chinese are probably five or six years away from being able to sell a competent low-end car.”

It may happen a lot faster than that.

Things are speeding up… .

Throw it in the Woods?

 

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20 COMMENTS

  1. I’m not the only one that’s noticed modern cars are somewhat pathetic in terms of milage then?

    A classic example is the original VW Golf GTI. The original was a sporty little 1.6 liter, producing something like 100 horsepower or so. The modern versions kick out ludicrous horsepower – 300+, yet aren’t any quicker. Just much, much heavier.

    In fact modern ‘small hatchbacks’ aren’t small at all. Put a modern Fiesta alongside an 80’s 3-box saloon and you realize the “hatchback” Fiesta is actually larger!

    One of my favorite cars from the past was my old Mercedes 190E.

    http://en.wikipedia.org/wiki/Mercedes-Benz_W201

    It was a 2.0 liter automatic very smooth, very comfy, plenty roomy. In the glovebox (I got it 2nd hand) was a test certificate – showing that it managed 45 miles per gallon. Then I read that the “Smart” (?) car, an upside down crash helmet with wheels, *nearly* makes 40 MPG?

    Modern cars have so much extra junk, sound-proofing and are actually bigger than they look, that all the modern technology is used just to get the thing moving.

    It’s the same with computers. Everything that Intel giveth, Microsoft taketh away again, with an ever-more bloated OS. My very first PC, running at a screaming 100Mhz and 4megabyte of RAM, was just as quick start up, use and shut down as my current machine, which on paper is meant to be over 1000 times faster…

    Can you imagine a 190E with the latest computerized ignition, variable valve timing and a 6 speed Tiptronic box? It would easily bust 50MPG.

    Lawmakers. Oughta be a law against em…

    • Alan, I’m with you!

      I’ve harped on this very topic in several columns. The typical modern “compact” weighs about as much as mid-sized cars did in the ’80s… and about 500-800 pounds more, on average, than the typical compact of the late ’70s/early ’80s.

      A major reason for the uptick in weight is bumper impact and crashworthiness requirements/expectations.

      I often wonder whether, if people were offered the choice, they’d be interested in a $15,000 compact that got 50-plus MPGs on the highway but wasn’t quite as crashworthy as the typical current compact that only gets 35 MPGs or so on the highway, due chiefly to the higher curb weight… .

      Personally, I’d take the 50 MPG car that was – theoretically – less safe. I say theoretically because accidents are to a very great extent avoidable; a skilled, alert driver can reduce his odds of being involved in a wreck to virtually nil. And if you don’t get into an accident, the crashworthiness of the car you’re driving is irrelevant.

      On the other hand gas mileage is an everyday reality – not theoretical at all. I ride motorcycles. Small and light – they are indeed less theoretically “safe” than a car, just as a larger/heavier car is “safer” – theoretically – than a smaller/lighter car. But I am willing to take on the slight theoretical risk that riding a motorcycle exposes me to, in return for both the fun of it and the very high fuel economy. I’d make the same decision with regard to a car.

      My beef is with the system that has deprived people of the right to make the choice between theoretical “safety” at the expense of efficiency for themselves.

      The people who would deny others that choice are known as Clovers here.

      • I agree wholeheartedly Eric and Alan. My gramps had a 1984 diesel Rabbit that got better than 50 mpg. Hell I have a 1990 Integra with 200k on it that still gets great mileage. My first “fast car” was a 1984 Plymouth Colt turbo. HP couldn’t have been more than 130 but it was so light that I destroyed heavier Mustangs and Camero’s. That car also pushed 30-40 mpg.

        • Hi Vince,

          I remember that Col turbo! I’d have to go look it up to confirm but I’m betting it weighed about 2,000 lbs. Maybe less. That wouldbe about 400-500 pounds less (easily) than a current-year equivalent that can’t match its mileage, even with the technological advances of 25 years… sad.

  2. I come at the fuel economy thing from a different direction. I grew up with “Little British Cars”. An Austin Healey Sprite/MG midget had at most 1275CC engine, a 4 speed, 3.90 rear, and 13 inch tires. They also weighed around 1500 pounds. They came with noting. No power steering, ac, hair bags…. On a road trip, at 60 to 65 MPH, with the engine screaming along at 3500 RPM plus, they regularly return 40 plus MPG. With no electronics, and 2 carbs. I also had a 105E Anglia (Harry Potter car) during the gas crisis of the 70s, that also got over 40MPG, with a 1200CC engine and 4 speed. These cars were not driven gently either. A couple of years ago, I drove a totally stock, original 74 Karmann Ghia coupe, with the “autostick”, from DC to Ontario and back. The car got 32 to 35 MPG in steady state cruising. Weight and complexity are the enemy of economy and spritely performance. I also have an Audi 5000 Quattro station wagon. 2.1 liters, 5 speed, and turbo. That car gets over 30MPG, on the highway (with crap ethanol gas) and it used to get 33 plus before the gas change. This is a big car, fully as large as my XJ6, but it got many hours in the wind tunnel, and it only weighs around 2500 pounds with a tank of gas. So where is the progress?? How about a fuel injected, aerodynamic 2 seat car WITHOUT navigation (I can read a map), Hair bags, and all the other weight wasting sparklies that add nothing to the actual use of a car??? Too bad, legislated away by some moron in DC. What do they care?? They ride a bus….

  3. Eric – you make some good points, but I think it’s going to be harder for the Chinese (or the Indians) to sell cars here than you think. The quality of cars built in India and China isn’t just bad, it’s hideously bad. I can’t speak for the Chinese, but I lived in India for a couple of years, and except for cab companies, most folks there buy foreign because Tata builds such crappy cars. You make a good point about Hyundai, but remember, the original Excel came out in the mid-80s, which was during Detroit’s darkest days and when general automotive quality was much worse (remember that the Excel was competing against ultimate s*itboxes like the Escort and the Cavalier). And realistically, it was a good 15 years before a Hyundai was considered mainstream. I’d also put the odds at better than 50/50 that a Chinese or Indian car would end up with a serious safety problem that kills some folks and ends up in a scandal/recall, like an exploding fuel tank or faulty brakes. While quality is certain to improve in 2nd and 3rd generation versions, I’m not convinced a Chery or a Tata can survive long enough to make it that far given the atrocious quality you’re likely to see from the start, especially if you end up with a recall scandal.

    Frankly, you’d be better off buying an old beater and fixing it up than rolling the dice on a new Chery.

  4. I own a fair amount of chinese machine tooling. Not bad stuff but a cut below the good american and japanese stuff. I’d bet that they could make a fair car (for the american market) if they wanted.
    On the other hand I view China as a hostile nation state that we will likely face in a shooting war in the near future. I’m not sure how much of my money I want them to have for exactly that reason.
    I spent 14 months in Korea while in the army. I hate Korea, Koreans and everything associated with that shitty little penisula. No effing way they get a dime out of me.
    The could sell gold plated Hundyais for a nickel apice and I wouldn’t buy one for anything other than scrap.
    K-

  5. This ain’t like me, but I am going to start off a “key a car” campaign on Chinese cars. I’ll make a website and rate user contributed videos on how well they carried out their vandalism. Fuck that! Walmart is enough..

  6. Sure I would, if it had a good engine and reliability. I own a Chinese made wristwatch (Nautec NoLimit) which has the look and feel of a Rolex, and will probably last about as long, too. Damn good buy at just USD$250.00. I hope that the Chinese can do just as well with their cars as they can with their watches.

  7. There is a huge difference in the engineering cultures of Japan and the USA and China. What people neglect is that Japan was an industrial nation turning out first class machines in the 1930s. Being bombed flat was a setback, but that’s it. Germany made junk after being bombed too. They both recovered. Their underlying engineering cultures did not disappear.

    (South) Korea’s engineering culture is closer to Japan’s (and the USA’s) than it is China’s. I have found Korea’s engineering culture to be a learning one, not a corner/cost cutting one. In China, despite all the progress, it is still a corner/cost cutting engineering culture rather than a quality one. The difference is the desire to make a quality product for less vs. just making a cheaper product.

    The biggest problem the US and Japanese manufacturers have is how the central banks are making their customers poorer. As customers become poorer they will start to accept the poorer quality. Much like bicycles and tools. Those who save and care continue to buy Cannondale and Snap-on. Those who can’t justify the cost buy mart-bikes (like the new Schwinn) and Harbor Freight. Or in some cases, finding no difference between the made-in-China american name brand and made-in-china-noname, just buy what costs less.

  8. Eric,

    Before considering the purchase of Chinese cars, you and our readers should go to Youtube. Search for “chinese car car crash test”. The car crash tests were conducted by the european and Russian equivelent of NTSA. Keep in mind that the cars being tested were improved, beefed up versions of what the Chinese drive.

    If our economy goes down the tube like it think it will, the average guy will only be able to afford a Chinese crap box. But they would be far safer (injury and death wise, by buying an older car. Yes,I know that mny people would prefer a new crap box over a well kept used car because they “do not want to buy someone else’s problem.

    • Amen!

      A ’70s Dodge Diplomat or equivalent would make for a rugged – and easy to keep up – cheap transpo option. Add an overdrive transmission to a car of this type and you can get reasonable gas mileage out of it, too. (I have a ’70s era muscle car with a 7.5 liter V-8. I added a modern overdrive transmission to it and it now gets close to 20 MPG vs. 12 or so before.)

      • Shoot, we might as well just bring back the K-car with a new 6-speed auto transmission.

        It has a better chance of passing crash tests than any currently-made Chinese-built vehicle.

        • You know, it’s not a bad idea! The original K got 30-something MPG. That was with a carbureted engine and no overdrive. With direct injection and a dual-clutch six-speed like the new Fiesta has, the K would probably be a 50 MPG car, easily. Part of the reason for that, of course, is that the K was much lighter than the current equivalent. Remember the ’80s-era Honda CRX? It weighed around 1,800 pounds and got better mileage than anything today that’s not a diesel or a hybrid….

        • I just looked up the specs on the CRX. Nothing impressive. Yes the 60 hp version had a decent efficiency with a 1.35 liter engine. One more thing to keep in mind though is that the highway rating was at 55 mph and no ethanol. The 76 hp and the 90 hp versions were not as efficient as many cars today with 120 hp or more. I would put my car up against the 60 hp version traveling 55 mph and with no ethanol. I would bet mine would beat it even with twice the hp. When comparing specs you need to have an even field.

          • Nothing impressive? The early CRX got 41 MPG highway – better than any current economy car on the market (only the ’11 Ford Fiesta matches it) and it did it with a carburetor and no overdrive transmission. If an original ’80s-era CRX were outfitted with just an overdrive transmission and had no other technological updates done to it, it’d be capable of close to 50 MPG (maybe more) on the highway and would be able to do so at speeds of 70-75 MPH because the OD gearing reduces load on the engine to almost nothing at that speed. Another way of putting it: The overdrive-equipped CRX would not be working harder at 70 than the original (non overdrive) CRX was at 55. Many new cars have two overdrive gears; I’ve driven several that are barely idling at 80 MPH. The same car without a modern OD transmission would be running 3,000-plus RPM at the same road speed and burning much more fuel in the process…

            With modern engine management and EFI plus the overdrive gearing, an original ’80s-era CRX would likely be solidly in the 50s, which would be better than most current hybrids or diesels.

          • Eric you are dreaming. Did you look at the torque and Hp of those cars? You put an overdrive trasmission in one of those and you would not make it up a 1% grade. The 60 hp car had a top speed of 93 mph and the 76 hp version had a top speed of 105 mph. I know that you would not drive them at top speed but that means that it would take it a minute or two to get up to that speed. Your 6% grade or whatever you have, the car would have a very hard time keeping up to 55 mph. I have driven 80 hp cars before and that was when the limit was 55 mph. Believe me an overdrive transmission in one of those would do you no good with such low torque. I drove an 85 6cyl van a few times for work and it dropped to 45 mph on a steeper hill. My car has almost twice the torque as the CRX and I have to drop it down a gear or two in the mountains and one gear on steeper hills.

          • Overdrive gearing comes into play only during light-load, steady-state cruise conditions, Clover. OD or not, your modern car and the older CRX would both gear down on a grade, or to overtake/accelerate. But at a steady 70 with cruise control on, the overdrive-equipped CRX’s engine RPMs would be just over idle speed, resulting in a significant gas mileage increase. There are modern cars sold in the European market that are similar to the old CRX in being very small/light, with engines around 1 liter. These cars are capable of highway driving and get 50-plus MPG.

            Also, you do not factor in the much lower weight of the CRX relative to the modern car. The reason the modern car has to have 120 hp is because it weighs 500-plus pounds more. The 2011 Fiesta, for example, weighs about 2,600 lbs. The ’80s-era CRX weighed less than 2,000 lbs.

            For some additional perspective, a motorcycle such as my Honda GL650 weighs around 750 pounds with me on it, yet is still quicker 0 to 60 than many sports cars, despite having half (or even less) the horsepower.

            As Colin Chapman understood, it is weight that matters much more than horsepower.

          • Eric around 15 percent more weight is not the need to double the hp. It is the requirment to drive 70 to 80 mph that is the need for the extra power. Back when the max speed was 55 mph you did not need much hp. It takes a lot less hp under 55 mph. Weight has very little to do with the difference between 55 mph and 75 mph on a flat road. Wind resistance is the major difference. With a head wind of 20 to 30 mph my car mpg drops a lot. That has nothing to do with weight. You need to do more research.

          • Sorry Clover – that’s wrong. The other reason (besides weight) that modern economy cars have more power than the economy cars of the past is that people expect quicker acceleration. Today, even a Prius gets to 60 in about 11 seconds (about 5-10 seconds faster than an old VW Beetle) and most compact economy cars can do it in 8 seconds or less. But very little power is needed to maintain a steady-state cruise of 70 or so. The ’80s-era CRX and other cars like it could already do that, easily – without modern overdrive transmissions. They just burned more fuel in the process.

            All the OD does is give a gearing advantage (reducing engine RPM and thus, fuel consumption) under low-load conditions, such as during steady-state cruise. During acceleration, even part-throttle, OD is irrelevant because it’s not engaged.

            So much for your “research.” Might try learning some basic mechanical engineering before you make such comments.

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