What does car sales in China have to do with cars in Los Angeles? Actually much more than you might think. There will be two large impacts on the cars you drive here by cars made in China and cars sold in China. Those two impacts will be a huge increase in gas prices and the likelihood that a car made in China may be in your garage in the future.
A Chinese made car in your garage? Yes, and sooner than you might think. As the Korean car manufacturers move upmarket to compete directly with the Japanese and American manufacturers, the Chinese are poised to move into the lower end of the American market. By next year, we should see a vehicle made in China here.
A car dealer in Arizona who currently sells Toyotas there and in California, has formed China Motor with the intent to import Chinese-made cars and light trucks into the U.S. China Motor is partnered with three Chinese manufacturers. Plans are to import two sub-compact cars, the Solo and Merrie initially. I'm sure they will get different names by the time they get here. The initial price should be less than $9000. At this point, however, Mercedes is considering a lawsuit because of their similarity in appearance to a C-class Mercedes. Also, Toyota is already suing China Motors for their logo, which is almost identical to Toyota's. Oops.
Alas, the Chinese are rather well known for their casual acceptance of copyrights and patents. China Motors also wants to import the Sing SUV, but Nissan already is suing in China because they claim that it is a copy of their Nissan Paladin, which is built and sold in China. Although not part of the plan for import to the U.S., Honda is suing Shuanghuan Auto because their RABO S-RV is supposedly a direct copy of the Honda CR-V.
The paperwork process with the National Highway Traffic Safety Administration (NHTSA) is not yet complete, nor is California state approval. China Motor plans to have 15,000 cars here by the end of the year. With the glacial process of paperwork processing in government, I'd predict that those cars will sit on a lot at the dock for some time before they get to a dealer near you.
But cars made in China that are new to the American market aren't the only Chinese-made cars you might find in your garage. GM already puts Chinese-made engines in some of their models sold here. GM management says that whole cars made in China imported into the U.S. are planned. BMW makes 3- and 5-series cars in a joint venture plant with Brilliance China Automotive Holdings already. They made 18,000 cars this year. A plan is being developed in Germany to build 3-series cars in China and sell them in the U.S. Can other manufacturers be far behind?
What's that? BMW is a German car manufacturer! My BMW is made in Germany! Well... not necessarily. All of the Z4s made for world consumption are made in South Carolina. BMW has had a large plant in South Africa for a long time. So BMW making cars in China isn't that large a leap.
Making cars in China and importing them into the U.S. isn't the only impact that China will have on the car you drive. In fact, it probably will be less than the impact the Chinese car market will have on the price of gasoline in the United States. Of course, politicians ignore this because it is a difficult problem and politicians don't like to try to solve difficult problems. The answers don't fit into 30-second sound bites.
A fifty dollar crude oil price will seem small in only a few years. The problem here is that the domestic market for cars in China is growing at an astronomical rate. It grew 76% last year alone. China's domestic production increased 83% in 2003 over 2002. The growth won't be that large this year because China clamped down on cheap car loans. It is anticipated that the growth will be "only" 10 to 20 percent. This is a problem for the rest of the world, and particularly the U.S. who uses 25% of the world crude, because China doesn't have much domestic oil production. They compete on the world market to purchase crude oil to refine into gasoline for their cars.
Of course China also needs to improve the roads, particularly in the rural areas for all these cars, but this will certainly be done.
BMW's 7-series is the largest selling luxury car in China. Could this be a justification for the Banglized styling? BMW is working very hard to develop the Chinese market. BMW sales in China for the first six months of 2004 are up 55% over 2003. Clearly this is a big profit area for BMW now and in the future.
GM looks at China in the same way. It is expected that China will be the second largest market for GM cars, after the U.S., at the end of 2004. Since the Buick Regal is one of the largest sellers in China, GM sells more Buicks in China than they do in America right now.
With this huge annual increase in number of cars on the road in China, gasoline to power them needs to come from somewhere. That "somewhere" is the decreasing world supply of crude oil. And that means that the price you pay for gasoline at the pump will be going up dramatically in only a few years. My estimate is $4 a gallon in five years.
