Chinese auto price wars: potential Macro impacts in U.S

[WendyBG]

Many METARs are old enough to remember the 1980s, when the market share of foreign cars in the U.S. increased dramatically. In 2023, Toyota has the second-largest share. The “Big 3” U.S. auto companies have a total of 43% of the market. The loss of automotive market share (as well as automation) led to the loss of many well-paid union jobs with a large Macroeconomic impact.

https://www.storagecafe.com/blog/top-10-largest-car-manufacturers-in-the-us/

China is now developing its automotive industry. The potential impact could be large.

https://www.wsj.com/business/autos/chinas-ev-champion-is-coming-for-your-gas-powered-cars-too-8b94a15e?mod=finance_lead_pos3

China’s EV Champion Is Coming for Your Gas Powered Cars, Too

China’s BYD has announced discounts that put prices below those of gas-powered equivalents built by some foreign competitors

By Jacky Wong, The Wall Street Journal, Feb. 27, 2024

Competition in China’s car market is getting even more intense. That means cheaper Chinese electric vehicles. It is also terrible news for China’s competitors abroad.

As margins compress at home, China’s EV makers are increasingly eyeing global markets. And Western and Japanese automakers’ traditional strength in gasoline-powered vehicles won’t necessarily save them: BYD, China’s homegrown EV champion, is starting to undercut the prices of some internal combustion engine-based vehicles too…The models in question are plug-in hybrids, which are usually cheaper than pure EVs due to smaller batteries. But the gambit is still significant because they are now explicitly competing with gas-powered cars head on. …

China became the world’s largest auto exporter last year. Shipping gas-powered cars to Russia, which is under Western sanctions, was one key reason. But strong EV exports to countries like Brazil and Thailand also helped… [end quote]

The first Toyota car was shipped to the U.S. in 1957. China is starting with exports to “middle income” countries but will surely enter the U.S. market in the future.

@steve203 has written about how U.S. automakers are trying to raise their margins by cutting production of low-priced models and loading higher-priced models with “subscription” costs.

This opens the U.S. market to lower-priced competition. The Chinese entry could be as devastating to U.S. automakers as Chinese imports were to consumer products.

Opinion | China’s Electric Vehicles Are Going to Hit Detroit Like a Wrecking...

China’s Electric Vehicles Are Going to Hit Detroit Like a Wrecking Ball

by Robinson Meyer, The New York Times, Feb. 27, 2024

…
The biggest threat to the Big Three comes from a new crop of Chinese automakers, especially BYD, which specialize in producing plug-in hybrid and fully electric vehicles. BYD’s growth is astounding: It sold three million electrified vehicles last year, more than any other company, and it now has enough production capacity in China to manufacture four million cars a year. But that isn’t enough: It’s building new factories in Brazil, Thailand, Hungary and Uzbekistan, which will produce even more cars, and it may soon add Indonesia and Mexico to that list. A deluge of electric vehicles is coming…

Earlier this month, BYD unveiled a plug-in hybrid that gets decent all-electric range and will retail for just over $11,000… [end quote]

Would I consider buying a low-priced Chinese gas-EV hybrid if it ranked well on safety and reliability? Yes. But I doubt I will ever buy a new car since my 2017 Subaru Impreza will probably outlast me.

Wendy

[GDavenport]

Gradually, slowly, then all at once.

I look forward to products which comply with US safety standards. Warranty and service will be interesting.

Where’s the nearest service center?

[jerryab2]

@WendyBG

loading higher-priced models with “subscription” costs.

I don’t pay subscription fees. I collect them. So they better offer to pay me a fairly high monthly amount for me to even consider using their vehicle(s).

[steve203]

Meanwhile, Ford CEO Farley, who has presided over a collapse of Ford sales in China, has said his plan is to use the surplus Chinese capacity to produce for export, rather than trying to compete in the Chinese market. So Mexican or Chinese built BYDs, will likely be competing with Chinese built Fords, for the USian dollar. For those who haven’t noticed, Farley has been blaming the union for the company moving to offshore more production, even though he voiced his plans for Chinese exports long before last fall’s strike and Prole pay increases.

Farley cited the company’s joint venture partnership with Jiangling Motors Group as an example of what it will do moving forward, with plans to use Chinese operations as “export hubs” for affordable EVs and commercial vehicles to markets such as South America, Australia and Mexico.

Last month, the company announced the next-generation Lincoln Nautilus for North America would be exported from China, a first for Lincoln. Executives have said the luxury brand is profitable in China.

Report: Ford CEO Says China Strategy Changing

[MarkR]

@WendyBG

The “Big 3” U.S. auto companies have a total of 43% of the market.

I’m not sure what you mean by “big 3” here, are you referring to GM, Ford, and Tesla? (because Stellantis isn’t a US company)

[captainccs]

@MarkR

I’m not sure what you mean by “big 3”

The FORMER big 3?

Climate is not the only thing that changes.

The Captain

[WendyBG]

@MarkR

I’m not sure what you mean by “big 3” here, are you referring to GM, Ford, and Tesla? (because Stellantis isn’t a US company)

I included GM, Ford and Stellantis (the old Chrysler). But you make a good point about Stellantis no longer being a U.S. company.
Wendy

[Leap1]

I think one or two brands will.

But there is a cost in the billions to do so.

The parts and service centers need to be set up. The British failed for not back in the day spending as much as $1 billion to set this up.

The insurance carriers won’t work with brands that can not be serviced or repaired.

Most of the Chinese companies are going to complete fail.

BTW I saw my first Rivian the other day. Beautiful pickup truck.

There is another issue.

The American consumer can afford a lot more for the next two decades.

Ford, GM and Tesla are standardizing a few things such as charging plugs. Possibly Operating Systems later.

The public will not be interested in cheaper.

I get that goes against the grain on this board.

Yes Tesla might even drive the basic model below cost to control internet time in a FSD EV.

I get the thoughts are at odds.

But at this point just coming in with a 1956 VW bug equivalent from China won’t hit much of a sweet spot.

The American consumer is fat and fighting to be happier.

[ptheland]

@MarkR

I’m not sure what you mean by “big 3” here, are you referring to GM, Ford, and Tesla? (because Stellantis isn’t a US company)

When I hear that reference these days, I read it as Ford, GM, and the former pieces of Chrysler (Chrysler, Dodge, Ram, Jeep), which are still largely sold in North and South America.

–Peter

[MarkR]

@ptheland

When I hear that reference these days, I read it as Ford, GM, and the former pieces of Chrysler (Chrysler, Dodge, Ram, Jeep), which are still largely sold in North and South America.

Toyotas and Hondas are also widely sold in the Americas. I also wouldn’t be surprised if more Toyota vehicles or Honda vehicles than Stellantis vehicles were assembled in the Americas. In any case, the context of the “big 3” comment was about US companies/US jobs/and US share and the resulting macro effects.

[steve203]

@MarkR

I also wouldn’t be surprised if more Toyota vehicles or Honda vehicles than Stellantis vehicles were assembled in the Americas.

Strabismus has managed to stay ahead of Honda. The market shares are something to behold tho. We old phartz remember when GM had a 50%+ share, Ford in the mid 20s, and Chrysler in the high teens. Ah, but Welchian management says to get out of whatever market is least profitable. Of course, as soon as you exit one market, that makes another market segment least profitable, so get out of that one too, and you shrink your company into irrelevance.

[btresist]

@steve203

Ah, but Welchian management says to get out of whatever market is least profitable. Of course, as soon as you exit one market, that makes another market segment least profitable, so get out of that one too, and you shrink your company into irrelevance.

I am no fan of Jack Welch but I think you greatly oversimplify things when blaming so much of GM’s decline to one guy’s business philosophy. GM’s problems began way back in the 1970s when gas prices rose along with Japanese manufacturing prowess and GM’s management turned out to be too risk-averse and constrained to doing “business as usual” to adequately respond. GM had gotten too fat and comfortable. It got disrupted then, and it is in the process of getting disrupted now.

[bjurasz]

Such a good book from someone with immense inside knowledge. I might have to buy it again and read it all over!

https://www.amazon.com/Car-Guys-vs-Bean-Counters-ebook/dp/B004IYJEA6/ref=sr_1_1?crid=950FHKACN2ZC&dib=eyJ2IjoiMSJ9.wIR-A4GOek8WrvZqe8AOdmg08uzvramwmDFsJcDbjCcoO9DoEOvxIAmRiFNYj5cwvgsm2hq61qWzRzWdgcnmjg.uUClK2Lpq0iIlpYqgtrlJlJ_mTsUyilPD_wrR46x2Lc&dib_tag=se&keywords=car+guys+vs+bean+counters+bob+lutz&qid=1709224013&sprefix=car+guys+v%2Caps%2C145&sr=8-1

[steve203]

@btresist

GM’s problems began way back in the 1970s when gas prices rose along with Japanese manufacturing prowess and GM’s management turned out to be too risk-averse and constrained to doing “business as usual” to adequately respond.

Then there was beancounter Roger Smith’s cheap campaign. I could not help but notice what absurd rusters 80s GM cars were. Then they pulled the plug on Olds. Then they took advantage of the bankruptcy to kill Pontiac and Saturn. I could make an argument for dropping those three brands as redundant, as Chevy and Buick covered the same market segments. Then GM started exiting segments, dropping the Cruze, Sonic, and Spark. Ford has gone even farther in abandoning segments, dropping the Fusion, Focus, Fiesta, Ecosport, Flex, and Edge, and now the CEO says he wants to abandon the entire 2 row SUV segment. That would leave the ICE Ford lineup culled down to the Explorer, Expedition, and pickups.

Steve

[Leap1]

The Japanese government supported their car companies and the workers.

We had idiots blaming the workers and more idiots not supporting the factories with government spending on roads and utilities.

A few rich people got a tax cut promised to the average slob. We want tax cuts do not include the word “we” when it happens. Meanwhile, state and local taxes went higher. All levels of government are in more debt.

You could not find bigger idiots.

Supply-side economics was never economics. Just the acting out of stupid ideas.

All of Friedman’s ideas were proven wrong by Samuelson some 3 to 6 decades ago.

[ptheland]

@MarkR

Toyotas and Hondas are also widely sold in the Americas.

My wording wasn’t the best. Chrysler vehicles are mainly sold in the Americas. The US is the largest market for their cars and trucks.

In any case, “The Big 3” is Ford, GM, and Chrysler. It’s been commonly used as a shorthand for those three companies for decades. That Chrysler is now owned by a foreign company is irrelevant. I find it slightly annoying when people try to redefine a common term as something else.

I have no problem pointing out that Tesla might have more sales in the US than Chrysler. (Or not - I haven’t looked up the data.) Or that Honda assembles more cars in the US (or not - again, I don’t have the data). Those are facts.

But don’t mess with common language, as that just confuses people and leads to long sidetracks in discussions (like this one). Or at least do so when it’s clearly in jest. Smiley faces are you friend in internet discussions, where humor is a bit harder to detect.

–Peter

[Leap1]

@ptheland

But don’t mess with common language, as that just confuses people and leads to long sidetracks in discussions (like this one).

add something to that generically

when wrong do not drag out the pain for the rest of us.

You may never be big enough to admit you are wrong in public but just stop.

[btresist]

@steve203

Then there was beancounter Roger Smith’s cheap campaign. I could not help but notice what absurd rusters 80s GM cars were.

I don’t think Smith cutting costs was the fundamental problem.

The advantage the Japanese had that disrupted the US auto industry was a substantially better way of car production. The Toyota Production System (TPS), which included stuff like Just-in-time and jidoka production principles, allowed significantly more efficient production with much higher quality standards. Even today, GM, Ford still cannot consistently match the quality standards of Toyota and Honda.

The problem wasn’t that GM was cheap, Toyota and Nissan were spending far less per car than GM. It was that GM and the UAW were unwilling and ultimately unable to adapt in a timely manner to the disruptive manufacturing methods of the Japanese car makers. Both are again late in the game in their response to the manufacturing innovations of Tesla and the Chinese.

[Leap1]

The Japanese government invested in the industry.

The workers had state pensions and healthcare. That is why it was cheaper to produce a unit. In reality the wealth of Japanese auto workers was much better than US workers.

The state with the company built the housing.

The state possibly did other things to facilitate the factory opening.

Taxes were possibly higher. That keeps inflation in check. Economic laws involving taxation.

Industries have synergies. As the factors come together other factors pour in.

In the US we had every aspect of our economy resisting taking care of workers or helping new factories open up. The spiral was downward. Without resources the big three were at odds with making a success of it. Then the lies set in about labor. Management became unanswerable to its ownself.

Those were not the fault of the industry. Those were our faults as a nation.

[MarkR]

@ptheland

In any case, “The Big 3” is Ford, GM, and Chrysler. It’s been commonly used as a shorthand for those three companies for decades.

This is of course true. But “the big 3” is short for “the big 3 US automakers”. And that’s why I question the use of the term with the same companies from decades ago. A few decades ago, it was always GM, Ford, and Chrysler, but today the big 3 US automakers may be different, and tomorrow they may be even more different. Finally, in the CONTEXT that “big 3” was used here, it might not make sense - for example, if we were talking about how best to stimulate the US auto industry, the expense of such stimulus would be higher for US auto companies, and lower for European companies or Japanese companies that happen to have some plants in the USA. If there were another great recession, and the auto companies had solvency problems as they did in fall of 2008, I strongly suspect that GM and Ford would get a heck of a lot more support than Stellantis would get.