They are everywhere. And even in the electronic age, the economic impact of the automobile is probably the second largest segment of the economy in the US. And a very large feature in every industrial economy in the world.
Worldwide, we hit a recent high of 54.9 million cars built in 2007. But there have been steady declines since. 2008 saw a slide of 3.7 percent with 52.9 million cars shipped. 2009 was down nearly 2% at 51.9 million, and 2010 appears to be on track for another sluggish year with just under 51 millions units expected to ship by year end.
The regional variances are really interesting. Fiat’s CEO estimates European car sales to slow down by 15% during this year. US sales, briefly bolstered by “cash for clunkers” were the worst in 24 years at 10.4 million units with sales by the Big 3 reportedly off by 20+ and 30% levels. So if Europe and the US are off by double digits, and worldwide sales are only off by a percent or two, where are the rest of the cars being sold?
Amazingly, China’s market for new cars is exploding in double digit growth and the Chinese Auto Industry reports 13.6 million units sold in 2009. That much more extraordinary since in 2006 they sold only 5.4 million cars. This report has made the news everywhere.
It is certainly with great pride that the Chinese Auto Industry makes this announcement. However, as I read the announcement more closely, they include in their data commercial trucks, which may not be the same as our light duty truck category, and buses, which are generally low in volume and shouldn’t really make much of a difference. But differences in the reporting basis are a cause for concern about the claim and the comparison.
China has, over the two decades, worked very hard to bring its massive industrialization into the world market. They began an aggressive program to graduate 5000 students per year with qualifications in the semiconductor industry. With considerable forethought, they have battled their way into the mainstreams with wafer fabs and all the needed resources to become a world leader in electronics. The years of effort have paid off. China is the low cost leader worldwide in electronics. But you still have to watch quality and consistency closely. And there is still a logistics cost to ship to foreign markets like the US.
In the automotive industry it’s a bit more difficult. Every major material science and manufacturing process must be mastered to build complex machines, often containing more than 10,000 unique parts per vehicle. Every mechatronic discipline is involved in the vehicle operation and even more complex mechatronic challenges exist on the manufacturing floor when you are trying to make 1,000,000 of something. It’s a daunting challenge.
Of the top ten brands in China’s car market, 9 of them are foreign joint ventures. BYD, the lone Chinese supplier among them, is experiencing great expansion, great sales success, but significant quality problems as well.
There are a wide range of choices in the worldwide auto market. From the Smart Car’s 45 mpg and $12,000 sticker price to the late-great Hummer’s 9 mpg and incredible $40 to $60K selling price. Italy’s Fiat has re-issued the 500 model with an impressive 69 mpg fuel rating and a price of about $13,000 (this will vary quite a bit with the Dollar versus Euro swinging around a bit). This car hasn’t been available in the US but with the recent shuffle with Chrysler, it is possible we could see it in the future. And 69 mpg would bring a lot of interest, even at current gas prices.
Is China going to be the giant in manufacturing over the next 10 years? Without a doubt. But there is still a lot of work to be done.
Are US Auto Sales coming back? Several forecasters are projecting significant increases in 2011. Many people, rightly concerned with a soft US economy, are uncertain. But financial incentives for new car purchases may again be on the horizon. And more innovation is coming as American car makers introduce more electrics, hybrids and high mileage gasoline vehicles to the market. With a little luck, things could get a lot better.
And I am betting that they do.