Don C. Brunell: China Now Driving Car Market

In the 1950s, America’s “Big Three” automakers (General Motors, Ford and Chrysler) were the pacesetters for our industrial dominance. They had the skilled workers, financing, mass production technology, sales networks, supply chains and customer base. In short, they had it all.

President’s Dwight Eisenhower and John F. Kennedy even tapped their CEO’s to be Secretary of Defense. "As General Motors goes, so goes the nation" was the commonly heard theme across our land.

However, in the last 25 years, our country’s manufacturing power has been increasingly challenged. As Japan and Germany rebuilt from World War II and South Korea recovered from the Korean Conflict, their government and industrial leaders learned from American “know-how!” Foreign cars and trucks have put a dent in our production.

By 2016, in terms of car sales revenue, the top seven were Toyota, Volkswagen, Daimler, GM, Ford, Honda and Fiat Chrysler.

The cost of gasoline has fueled much of that change.

The shift away from gas-guzzlers, many of which were “Made in America,” accelerated with the Arab oil embargo in 1973. Gas was rationed and the cost of a gallon doubled----40 to 80 cents. Suddenly, smaller and more fuel efficient European and Japanese models posted strong sales.

Furthermore, as motor vehicle sales extended far beyond the United States, Canada and Europe, the need for gasoline mushroomed. With millions of Chinese workers joining the middle class, car sales started skyrocketing. By 2009 the world’s most populated nation became the largest car market as well.

While China’s domestic auto manufacturers account for less than half of today’s auto sales in China, nine out of 10 electric vehicles sold there are made by Chinese automakers. With the heightened concerns over global climate change, China’s government is heavily subsidizing electric vehicle development and car buyers.

It is part of the government’s “Made in China 2025,” which is the first 10-year action plan designed to “transform China from a manufacturing giant into a world manufacturing power,” China Daily reported.

The plan features 10 innovative strategies, according to Miao Wei, the minister of industry and information technology (MITT). “China will basically realize industrialization nearly equal to the manufacturing capabilities of Germany and Japan at their early stages of industrialization.”

China is not only focusing on electric cars and enhanced battery technology, but wants to dominate the driver-less vehicles market. However, even with subsidization, electrics and autonomous cars are costly. High battery prices are one of the main hurdles for companies trying to build vehicles the average wage earners can afford.

“In the U.S., the best-selling electric vehicles tend to cost more than $30,000. Globally, some electric vehicles sell for less than $10,000, but only after large government subsidies and rebates,” Eric Bellman wrote in the Wall Street Journal.

“In China, the world’s largest electric car market, the Baojun E100—made by a joint venture between General Motors Co. and SAIC Motor Corp. —sells for as little as $6,500, but only after more than $7,000 in government incentives,” Bellman added. Such concessions helped push China’s sales of electric cars to more than 600,000 last year—three times the number sold in the U.S.

In the long term, China is betting it will have the same dominance America’s “Big Three” had in the 1950s and electric and self-driving vehicles are the means to that end.

However, BP, in its 2018 energy outlook, still expects the transport sector to be “dominated by oil,” with oil demand accounting for around 85 percent of fuel supply by 2040.

But keep in mind, as the world is learning, “what the Chinese want, they increasingly have the power to get.”

(DON C. BRUNELL is a business analyst, writer and columnist. He retired as president of the Association of Washington Business, the state’s oldest and largest business organization, and now lives in Vancouver. He can be contacted at theBrunells@msn.com).