Foreign Auto Demand Can’t Save US Auto Manufacturers

In Detroit we met with several of Ford’s upper level employees, who discussed where they saw growth opportunity in the future.  Several times they pointed towards the east as a region of unbelievable and untapped potential for growth.  I am not saying that the development of China with its immense population does not pose a huge emerging automobile market.  However, due to a variety of issues, US automobile manufacturers may not be able to rely so heavily on this foreign market to spur profitable earnings reports.  The US automobile market is for the most part saturated with car sales going to people buying their second car and few people not having cars.  One strategic option may be for Ford, GM, and the likes to seek out innovation and technological improvement as a way to stimulate consumer demand and derive profits from lower cost higher price vehicles.  However, the opportunity to forgo investment and simply sell the fleet in current existence to the East poses too great an opportunity to pass up for these companies.  The article points out China’s intricate foreign investment laws and rules as possible reasons why US investment may not be very profitable for the companies even if their market share increases.  Furthermore, every company in every developed country around the world is looking to gain a piece of the Chinese auto market, which has lead to price wars to point of marginal cost pricing with little room for profit potential.  Perhaps the Chinese automobile market will in fact provide large benefit to the struggling American automobile manufacturers, but the idea that declining/stagnant demand domestically can be entirely supplanted by Chinese demand is much to optimistic.

 

http://www.forbes.com/sites/kandywong/2014/05/05/a-tale-of-two-paradigms%E2%80%8B-china-drives-growth-but-general-motors-and-ford-fail-to-deliver/

3 comments to Foreign Auto Demand Can’t Save US Auto Manufacturers

  • Kuangdi Zhao

    Foreign demand may be able to save domestic manufacturers when cars made domestically can be sold overseas. However, the taxation upon imported goods makes vehicles’ s price look much less competitive. Customers of small vehicles are particularly sensitive to price. Luxury vehicles, on the other hand, have to pay higher taxes. Unless demand is inelastic, it is hard for US auto companies to export vehicles to markets such as China while making decent amount of profits.

  • Jier Qiu

    Buick and Focus are still the top-sellers in China. Buick is widely being used as company cars and Focus is one of the top choices of most young adults as their first car. I think the problem about American cars in China is that the quality of American cars cannot compete with German cars at the same price level. So most American cars seem a bit pricey in China, not by their price but by their value.

  • You can go into financial statements and find a bit (not much!) on actual profits from China. At VW (where I did that on my Autos and Economics blog) the amount is pretty significant as a share of their global profits. Remember, barriers to entry HELP firms that are already in the market and doing well, and in China that applies above all to GM and VW.

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