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China Looms as Next Leading Auto Exporter
A production line of Beijing Jeep, a joint venture of DaimlerChrysler and the Beijing Automotive Industry Holding Company. Such ventures are being undertaken in China by a number of leading foreign automakers. Courtesy Michael Reynolds/EPA

SHANGHAI, April 21 — Industrial heartlands from the Great Lakes region to Germany, look out - here comes the Chinese auto industry.

A senior DaimlerChrysler executive, Ruediger Grube, startled a roomful of journalists and his own aides at the Shanghai Auto Show on Thursday by disclosing that the company intended to export small cars from China to the United States. Daimler is already in talks with one of its Chinese joint-venture partners to build a factory for the exports, he said, and would like to work out the details and make a final decision on the project in the second half of the year.

But any cars from such a venture would be only part of what now seems to be shaping up as a broad assault on global automotive markets by Chinese companies and the Chinese divisions of multinational companies.

China's auto parts exports of everything from Delphi parking-brake components to Johnson Controls seat covers are already increasing to countries around the world. Sizable exports of fully assembled cars by Chinese-owned automakers like Hafei and Chery have already begun to developing nations in South America, Africa and the Middle East.

DaimlerChrysler's negotiations now make it increasingly likely that significant numbers of cars will be shipped from plants in this country to the United States and Europe as soon as 2008.

Robert A. Lutz, the vice chairman of General Motors, said here that he expected at least one of China's homegrown automakers to be successfully exporting around the world in the next five years.

"We're rapidly approaching that point," Mr. Lutz said. "I wouldn't venture to say which one it will be."

Until recently, high costs for auto parts, a scarcity of top-quality steel, a shortage of experienced engineers and a history of uneven quality had prevented China from using its inexpensive labor to gain any significant share of the world automotive market.

But all these problems, including quality, are gradually being fixed, even as Chinese industrial workers, at $2 an hour or less including benefits, remain among the lowest paid in the world.

"In terms of quality, the cars from China and the cars from Korea are the same," said J. M. Noh, the president of Beijing Hyundai and an automotive-quality expert who spent 15 years in Hyundai's quality-control departments in South Korea before coming to the company's joint venture in China.

The prospect of fully built cars from China appearing in showrooms in the United States and Europe risks renewed international confrontations over China's trade and currency policies.

The Chrysler unit of DaimlerChrysler does not now sell a very small sedan of the sort the company proposes to import from China; its smallest offering in the United States is the slightly larger Dodge Neon. But the planning for such a car is likely to stir memories of how Japan and South Korea each started by dominating the American subcompact market and then steadily moved to larger vehicles.

In Detroit, the United Automobile Workers responded to the DaimlerChrysler announcement with a blistering attack on China and on Washington's trade policy.

"The $1.50-to-$1.95-per-hour labor cost in the Chinese auto industry is not arrived at by any 'natural' operations of a free market," Ron Gettelfinger, the union president, said in a statement, "but through artificial repression of wages by a brutal regime which outlaws independent trade unions and jails more labor activists than any country in the world."

"China's repression of its own workers and its manipulation of its own currency," Mr. Gettelfinger added, "are unfair trade practices which must no longer be tolerated by the U.S. government."

In China, Honda has just finished building a factory in Guangzhou, near the southeast coast, for exports to Europe starting in late May or early June. More speculatively, the Chery Automobile Company has announced plans to begin shipping some cars to the United States in 2007, although it faces formidable difficulties in developing an American dealer network.

But auto executives say that the real challenge from China, at least for the next several years, will lie in the auto parts industry. The Commerce Ministry forecasts that Chinese automotive exports, mainly parts, will rise to a range of $70 billion to $100 billion by 2010 from $11.8 billion last year.

"I see more opportunities for the components base and major subassemblies for export," said James J. Padilla, president and chief operating officer of the Ford Motor Company.

At the same time, China's need for imported auto parts is leveling off as car sales slow in its domestic market and automakers find that they can more easily buy locally. After running trade deficits in the auto sector for the last three years, China's automotive exports in the first two months of this year, at $2.01 billion, were almost double its imports, at $1.17 billion.

Continental Teves, for example, is now able to make or buy nearly all the parts for brakes that it sells in China except for antilock braking system valve blocks, which still come from Germany. BorgWarner has begun making timing belt gears and sprockets in China for Volkswagen's huge operations here, instead of importing them from one of its factories in Italy.

The Chinese government is pushing not just parts makers but auto assembly plants to export. Regulations bar multinationals from owning more than 50 percent of auto assembly joint ventures in China.

But Beijing authorities made an exception two years ago and allowed Honda to own two-thirds of the assembly plant just completed in Guangzhou after it promised to export all the cars from that factory to Europe.

Asked whether DaimlerChrysler was seeking a similar deal for the factory it is negotiating to build for the production of small cars for the American market, Mr. Grube said only that a number of details of the operation were still being worked out.

To be sure, China's auto sector still faces several obstacles to exports - most notably the uneven quality of many small parts and the lack of a dense infrastructure of reliable local suppliers of the many different screws, rods, bearings and other parts essential in assembling larger auto components.

Timothy R. Donovan, executive vice president and general counsel at Tenneco Automotive, said that quality problems had been a significant cost in Tenneco's manufacturing of shock absorbers, struts and mufflers, which are sold almost exclusively in the Chinese market.

Tenneco has to employ extra workers to sort and check incoming parts because defect rates are 15 to 20 percent higher than in advanced industrial nations, Mr. Donovan said. But the workers inevitably do not catch all the defects, which are found later in the production process or even on arrival at the assembly plant, he said.

The later a defect is found, the higher the cost of rebuilding or throwing out the entire part. To make matters worse, the same grades of steel often cost more in China than elsewhere because of high local demand, and many high-strength grades must be imported at even greater expense.

"Their supply base, from a cost standpoint and a quality standpoint, is not up to world-class standards," Mr. Donovan said, while adding that quality is now improving.

While Chinese parts now hold a large and rapidly growing share of the market for lower-quality replacement parts purchased by repair garages, automakers in industrial nations have so far been wary of relying on parts from China for installation in new cars.

But this, too, is beginning to change, with Mr. Donovan saying that Tenneco is starting to receive requests from automakers to submit contract bids for production in China.

Some Chinese manufacturers complain of receiving many invitations to bid from European, American and Japanese automakers that have little intention of buying, but want to use the bids to demand much lower prices from long-established domestic suppliers.

"These groups come in from Ford or G.M.," said Todd Fortner, president of the Changshu Automotive Interiors Company, "and we don't know if they're just surfing" for low bids. "Sometimes, I get tired of answering all these requests for quotes."

The big question in the longer term, Mr. Fortner added, is whether industrial nations will keep their markets open to imports and avoid protectionism.

"The Chinese economy is capable of doing $100 billion" in annual auto parts exports, he said, "but whether the U.S. economy or the European economy has the stomach for it remains to be seen."

The above article is from The New York Times.




 

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