What Else Could Hit the Big Three?
Monday, January 14th, 2008
By Inya Ivkovic, MA for Profit Confidential
Believe it or not, Chinese auto manufacturers might come knocking. Again!
Last month, Canadian car dealers went on a little fishing expedition in the U.S., or it could have been a recon mission. In any event, Canadian car dealers joined their U.S. counterparts for a series of meetings with New Jersey’s Chamco Auto to test-drive — imagine that, Chinese-manufactured SUVs and trucks. My first thought was Chinese-manufactured toy recalls, but re-reading the news tidbit confirmed that the “toys” were for grownups this time.
Namely, Chamco Auto is testing the North American waters for China-based Hebei Zhongxing Automobile Company, which claims that its vehicles would be selling at US$13,500 because low costs of labor in China allow for such generous suggested retail prices (from the consumer point of view).
All that Hebei Zhongxing needs is US$100,000 for some sort of a “membership” in the company’s Canadian subsidiary in exchange for setting up a dealership network within three months and for ensuring that the vehicles meet tough North American safety and fuel efficiency standards within nine months.
There are two probable scenarios. One is that the whole trip south of the border was a waste of time because it wouldn’t be hugely unexpected to see Chinese-designed and manufactured vehicles not making the cut against North American standards.
Something similar already happened once in the past when Malcolm Bricklin of New Brunswick tried to make a market for Chery Automotive (you’ve gotta love the Chinese and their almost stealing of name brands, but not really: Chery, Chevy — you get the point?). Well, when Chery cars didn’t meet the production standards, the company returned back home and to the drawing board, while dealers held Bricklin accountable for lost “membership” fees.
The second scenario, however, could deliver a serious blow not only to the North American car manufacturers, but also to Japanese and Korean manufacturers. If — and it is a huge “if” — Hebei Zhongixing’s cars jump the safety and fuel efficiency hurdle, there is no way either the Big Three or the hugely popular Japanese and Korean car manufacturers can effectively compete with China’s cheap labor and consequently extremely low retail prices. Considering operating costs in the automobile industry in North America, there is simply no economic reasoning for prices to be any lower than they already are.
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