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Detroit has a craving for Chinese

Chris Woodyard From USA TODAY| January 24 , 2007

A generation ago, the arrival of Japanese cars here was greeted with sledge hammers.

Auto dealers selling domestic brands gleefully offered customers visiting the sales lots a whack at one of the little imports. Some companies and Detroit-area union locals banned foreign cars from parking lots. A bumper sticker declared "Toyota, Datsun, Pearl Harbor."

The hostility was prompted, at least in part, by fears that for every auto industry job created in Japan, one was being lost in America. It inspired a wave of protectionism that has made Japanese cars a hard-sell in much of the Midwest for decades.

Now, the Chinese are poised to become the fourth wave of exporters of inexpensive cars to American shores — after the Germans, Japanese and South Koreans. And how is Detroit responding this time?

With open arms

Instead of trying to throw up new barriers, Michigan seems to be taking the attitude that if you can't beat them, at least invite them to come and sink money into the beleaguered state's economy.

"We want Chinese automakers and their investment here," Michigan Gov. Jennifer Granholm declared as she toured the North American International Auto Show here earlier this month. "We want to make sure we take advantage of the global economy and are not just victimized by it."

Instead of viewing imports as a threat, state and local officials say they see them as a path to enhancing Detroit's role as the center of the automotive universe.

The Chinese so far haven't engendered the kind of anti-pathy that dogged the Japanese. U.S., Japanese and South Korean automakers all are taking part in joint ventures with Chinese companies to open China's domestic market. By contrast, much of the resentment of Japan 35 years ago centered around the perception that the USA was being shut out by an alliance of Japanese automakers, suppliers and its government — "Japan Inc."

That was long before Japanese automakers and suppliers began building U.S. plants.

Gaining a comfort level

In China, General Motors was the top automaker last year, followed by Volkswagen, Hyundai and Honda, PricewaterhouseCoopers says. GM Vice Chairman Bob Lutz says Americans shouldn't fear a "Chinese menace" when it comes to auto imports. "Because we are inside that 'menace,' I'm more comfortable," Lutz says.

And, frankly, when it comes to the U.S. market, Chinese cars aren't ready for prime time. They don't yet measure up to American quality or safety standards.

That gives Detroit automakers a few more years to figure out how to survive — or take advantage of — the coming onslaught.

Meantime, Michigan isn't waiting. Wayne County, where Detroit is situated, now has three trade offices in China and has sponsored two trade trips. The state of Michigan's trade office in China switched two years ago from focusing on hawking the state's products to Chinese companies to trying to lure those same companies to set up shop in the Wolverine State.

For now, state and local officials aren't expecting a lot of success. It took years before the Japanese and South Koreans set up auto plants in the USA. Maybe the Chinese will consider opening a research center, test track or sales office as a first step.

Nailing the first one is what counts. "If we get the initial companies here, the rest are going to follow," says Wayne County Executive Robert Ficano in an interview in his office, where a case holds the plates and other gifts he received on China visits. So far, he says, the county has attracted one small, press-shy Chinese auto parts maker.

What he's trying to avoid is having Chinese automakers slip away the way that the Japanese and South Koreans did. At the same time that Michigan's resentment of Japanese cars was starting to boil, the Asian brands were situating their U.S. headquarters in Southern California. "I don't want to see that mistake repeated," Ficano says.

Ficano, a Democrat and the county's top elected official, didn't let the opportunity pass when Changfeng Group showed up at the big auto show this month, the first Chinese automaker to exhibit on the show's floor. He exchanged gifts with company's chairman, Li Jianxin, in a ceremony before the press unveiling of Changfeng's SUVs and pickup. "Our doors are open, and our workforce is ready and willing," Ficano told the Chinese.

Granholm, also a Democrat, toured Changfeng's display as part of her rounds through the auto show. "We're glad that you're here, and we would love investment if there ever is an opportunity," she told the automaker's vice president, Allen Zhiyu Han, who ushered her among the models. "We're interested in seeing production here, too, for the American market as you open it."

Jianxin, through a translator, said Changfeng came just to make an appearance and doesn't have immediate plans to open a U.S. headquarters. When the time comes to enter the U.S. market in about two years, the company would probably start selling vehicles regionally.

Teaming up could mean jobs

Michigan needs help with jobs, having one of the highest unemployment rates in the nation. The state's seasonally adjusted jobless rate of 7.1% in December — 7.7% in greater Detroit — was far above the national average of 4.5%. The state lost 39,000 manufacturing jobs, the kind of good-paying jobs on which the employment base is built, last year, according to the state Department of Labor and Economic Growth. GM and Ford Motor announced dramatic lists of plant closings and employee reductions last year. Meanwhile, European and Asian brands have continued to pick up market share and grow by building plants primarily in other parts of the Midwest and in the South, where unions aren't as strong.

Michigan, however, has advantages that other states lack. It extols its car-building tradition, strong universities and inexpensive real estate. "We have a ready workforce of people who grew up with autos in their DNA," says James Epolito, CEO of Michigan Economic Development.

Michigan has the right idea, says Stephen D'Arcy of PricewaterhouseCoopers' automotive consulting practice. But while Detroit may have a rich ethnic tradition — visible communities of Greeks and Middle Easterners, for instance — its Chinese are more widely dispersed. To lure Chinese companies, D'Arcy suggests the state go on a charm offensive, adopting the attitude: We are going to fall over ourselves to make you welcome.

Epolito isn't hurting for prospects. Changfeng is only the most visible of the Chinese companies eyeing the U.S. market. Last year, Chinese brand Geely exhibited a car in the foyer of the car show, though not on the floor itself.

And sending the biggest quake through the auto show this year, Chrysler Group announced it has a tentative agreement with Chinese maker Chery to develop small cars to sell in the USA and worldwide.

But getting Chinese cars to market in Michigan or anywhere else won't be easy.

First, Chinese parts suppliers may not be sophisticated enough yet to produce the fancy systems that U.S. consumers demand, cautions Michael Robinet, vice president of global vehicle forecasting for CSM Worldwide.

Then there is the matter of how to find the many dealerships that would be required to sell the cars. "It has little to do with the Cherys and Geelys and Changfengs. It's a distribution issue," Robinet said at a Detroit conference last week.

Last, there are questions about how fast the Chinese can catch up to American quality expectations. "Our customers here are pretty sophisticated, and in many cases the demands they have on products exceed the ability of the Chinese" automakers and suppliers, says Jim Press, president of Toyota Motors North America.

Changfeng is, in some ways, a good example of how the Chinese are catching up to, but haven't yet caught, most of Western automakers. Founded in 1950 as a military plant, Changfeng has developed its line of mostly SUVs over the past decade. By 2010, it hopes to produce 288,000 vehicles a year.

By comparison with the industry, that's still just a smidge. Changfeng's production goal is about equal to the number of Chevrolet Impalas sold in the USA last year.

The vehicles Changfeng brought to the Detroit show were mocked by some observers for issues such as poorly fitting panels and uneven paint jobs. "You get what you pay for," Khalid Al-Naif, who specializes in the economies of developing nations at the William Davidson Institute at the University of Michigan, said as he looked over Changfeng's vehicles.

But he doesn't underestimate how Chinese cars could conquer the market, having seen them make inroads in his native Jordan. "Even if they break, (parts) are cheap."

The entry of China into the U.S. market "can't do anything but help" because of increased competition, said Paul Lisi, 46, a computer technician from Cincinnati who was touring the show with his 18-year-old son, Phil.

Still, he added, "Henry Ford is rolling in his grave."

But over time, the line between what constitutes a foreign or domestic car has blurred anyway. "Even American cars have foreign parts," says Jeff Bucher, 55, of Toledo, Ohio, who runs an auto repair shop.

Can't hide from global economy

Michigan officials say there is no reason to fear the Chinese auto industry as long as the state can take advantage of its interest in the USA.

"Don't be afraid of China," says Yvonne Warmbier-Ramp, the Mandarin-speaking head of Michigan's Shanghai trade office. "It's going to help us."

Ficano agrees. Wayne County and Michigan, he says, can't afford to be left out of the game.

"It's a global economy. If we stick our heads in the sand, we're going to pay a heavy price."

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