Well, Bob Lutz just got back from the Shanghai Auto Show and took a minute to write about what he saw. It's a "gee whiz" kind of post, in which he describes the impressive gains in professionalism made by the Auto Show and marvels at the amazing rate of growth taking place in China itself.
His assessment of the implications for auto manufacturers is sobering.
They’re in the process of building 50,000 miles of interstate freeways, north-south and east-west routes, and it’s likely that cities will spring up at the nodal points where the highways meet, as the nation shifts from largely agrarian to largely industrial. Picture America’s Industrial Revolution replicated on a scale of a billion and a half people. In 10 years, China will be, by far, the world’s largest automobile market. Ignore it at your peril.
We've all heard the numbers concerning China, but the numbers don't do the growth rate justice. In the next 25 years, more than 300 million Chinese will take to the cities, a number greater than the population of the US. As they become more affluent and more urban more and more Chinese will want cars.
Can GM compete with domestic Chinese manufacturers?
This is a theoretical question today, but we have to wonder if it's possible for any foreign-based company to compete successfully in the Chinese market. First, the Chinese government is likely to be highly protective of its domestic manufacturers. Even though GM is partnering with Shanghai Automotive Industry Corp., market conditions are likely to be skewed in favor of domestic producers. Completely China-owned producers will benefit.
Second, GM will inevitably be less market-savvy than the Chinese in their home market. Can they design cars that really impress the Chinese market? While GM's China sales were up 27% in 2004, native production is in its infancy. Market innovations are likely to be tougher to come by for GM than for domestics.
Finally, Japan is likely to be a wildcard in the Chinese market. If anti-Japanese domestic political opinion continues to grow, Toyota, Honda and Nissan may enter into sweetheart deals with Chinese manufacturers as a means of calming rough waters.
But hey, what do I know?
Bob enthusiastically (you've gotta like this guy's spunk) points out the progress GM's making in the region and sounds sanguine about the future. That's good: leaders gotta be positive.
And then, in a PS, Lutz throws in, as Hugh would say, a wee link, with a little throwaway line about "interesting reading." The link is to an article in the Ottowa Citizen by Robert Bostelaar. Interesting piece. In it, Bostelaar reviews the Pontiac G6 (positively, but with some sharp critiques). Most interesting to me was his assessment of GM's future prospects. After declaring himself no business analyst, Bostelaar writes:
And of the global industry, we do know this. Supply exceeds demand, to the point where it is becoming impossible to make a profit making cars. GM may be in the spotlight now, but all automakers face this dilemma, and the largest of them has the largest reservoir of engineering ability.
And as the stakes rise, much of GM's might is only now coming to bear. Just one example: In development for the G6's pushrod V-6 engine are a displacement-on-demand system to save fuel, plus variable valve timing and a three-valve-per-cylinder arrangement that would be firsts for an OHV engine.
What seems old-fashioned could quickly become innovative.
Think of the car business as a dance marathon in which the tempo increases for every number. The weaker players are already starting to drop. We figure GM has a lot of moves left.
Regardless of what you think of that logic, I think Bostelaar makes the excellent point that it's a little early to be counting GM out of the global automobile manufacturing game just yet.
Get Bob some good chopsticks, 'cause I think he's going to spending some quality time in China over the next couple of years.
UPDATE: Well, what do you know? Business Week's cover story is entitled, Why GM's Plan Won't Work...And The Ugly Road Ahead. I'll be looking at that in a future post. But the article did contain a sidebar, entitled, GM and VW: How Not To Succeed In China. Problems cited: cost (leading to high prices), first mover consequences (restrictions imposed by Chinese regulators), competitors (cheaper, faster, smarter). Check it out.
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