Saturday, May 30, 2009

What Happened to GM's China Export Plans?

A couple of weeks ago, GM let the world know that it was planning to export small, China-made autos to the US beginning in 2011. At the time, I speculated that this announcement was merely a tactic being used to pressure the UAW in negotiations.

Today, the Financial Times is reporting that GM is now planning to build its small car in the US. This is apparently a "concession" it made to the UAW.

Ron Gettelfinger, the UAW’s president, told PBS on Thursday that the union had put pressure on GM and on the administration to block GM’s plans to build the small cars in China.

GM’s 60,000 union members were set on Thursday to approve modifications to their 2007 contract, including fewer holidays, an end to cost-of-living increases and more flexible work rules.

Mr Gettelfinger said: “I have a lot of misgivings about it. But, look, we did the absolute best that we could.”

My friend Andrew Hupert, an expert in negotiation, would have spotted GM's straw man from a mile away. Fortunately for GM, the UAW didn't.

Geely vs Chery? It's not so simple.

The car buffs at China Car Times, one of my favorite sites for learning about the latest car models being manufactured and sold in China, have posted an editorial pitting Geely against Chery and proclaiming Geely the winner.

(Geely and Chery are two of China's largest manufacturers of domestic brands.)

While I'm not an expert on the inner-workings of either company, I have seen the same profusion of models that erupted from both companies at this year's Shanghai Auto Show. China Car Times (CCT), however, strongly criticizes Chery for this shortcoming, while failing to recognize that Geely is guilty of the same problem. (Both companies are criticized in this article at Automotive News China).

Furthermore, it isn't clear why CCT finds Geely so fascinating, aside from its praise of Geely R&D Chief, Frank Zhao. Perhaps I should know who Frank Zhao is, but CCT could have at least explained to us why this gives them an advantage. Who is Chery's R&D Chief, and why is he (or she? -- who am I kidding, it's a he) inferior to Mr. Zhao?

One of the commenters to CCT's article (for whom CCT obviously bears no responsibility) quite astutely suggests that Geely's advantage lies in the fact that it is private, whereas Chery is state-owned. And as we all know (a phrase that should make any reader cringe) the private sector is better at running businesses than the government.

I would like to suggest that, in China, the lines between public and private are not are as clear as they are in many other countries. Yes, China does have a nominally "private" sector, but in reality, nothing in China is truly "private". In China, the government still owns all land, and is therefore everyone's landlord.

Li Shufu may be Geely's controlling shareholder, but Geely is just as beholden to the government of Zhejiang Province as Chery is to the City of Wuhu. Yes, Geely has more flexibility, not because it is private, but because it is headquartered in one of China's richest provinces. The government of Zhejiang doesn't care where Geely builds factories, but if it did, they would all be built in Zhejiang. Geely would have little choice in the matter.

BYD is also private, and it has factories outside of its home city of Shenzhen. Shenzhen, as it happens, is China's richest city.

Great Wall is also private, and all of its factories are in its home province of Hebei. Why? Though I cannot prove this, I would suggest that it is because Hebei needs those factories there. Hebei's GDP per capita is roughly half that of Geely's home province of Zhejiang.

If one is going to study cars in China, it is simply impossible to ignore the politics. I suppose the same goes for the US too -- since GM is now an SOE.

Wednesday, May 27, 2009

Shanghai Lagniappe

A "little something extra" today... Three random thoughts from Shanghai...

Historical Monument in Xintiandi

This morning I had a revealing and fascinating research interview at a location in Shanghai's swanky Xintiandi area. For those who don't already know, Xintiandi (新天地, or "new heaven and earth") is a relatively new development in the former foreign concession area of Shanghai where old Shanghai-style buildings have been completely renovated and turned into a very interesting collection of shops and restaurants. Some Chinese friends introduced it to me as a place where I can go to "have a drink with other foreigners" -- which is not exactly something I've been looking for, but it's nice to know.

While strolling around I came across this sign that seemed quite ironic to me. It says this is the location of the first meeting of the People's Congress of the Chinese Communist Party -- right here in the middle of this monument to capitalism and possibly the largest concentration of foreigners in all of China.

Surely I am not the first person to make note of this, so if you're already aware of it, then please feel free to chalk it up to yet more inane comments from yet another white-dude blogger. :-)

Taxi Advertising

Last evening someone posted a link in Twitter to this WSJ article about seat-back advertising in Shanghai. On the way back to my hotel from Xintiandi today, I was (un)fortunate to grab a taxi with one of these things. It's a small LCD video screen running nothing but constant ads.

As with the other times I have seen these things, I watched for about ten seconds before hitting the mute button. It strikes me that this model is all ads and no content. If the taxi offered Tivo, the screen would remain blank. I'm not an advertising executive, but I am a human, so I think I have a valid opinion on this. Then again, maybe it was intended for the average Shanghai resident who has seen the city so many times that they would rather watch ads than look out the window.

Yes, I'm still stuck on autos...

In yet another Twitter posting I saw today, someone put up a link to this Steve Clemons blog entry at The Washington Note. In this post, Steve tells about his visit to the BYD factory in Shenzhen and praises their development of plug-in hybrids.

Though I think he is a little too optimistic in his assessment of BYD's (and China's) new energy vehicle capabilities (I have noted my pessimism in a previous post) he is one of the few people who dares to mention the unthinkable, an increase in the US federal gasoline tax so that gasoline never drops below $4 per gallon. Since I don't intend to run for President, I would like to say that I agree with this proposal -- particularly if it is phased in over a few years and the proceeds are 100% devoted to local public transportation alternatives.

As for my assessment of China's new energy vehicle development, I have still yet to meet any auto insiders here who are as optimistic as foreigners are, but I am still fully supportive of anyone who is pouring money into this important effort.

Tuesday, May 26, 2009

So is China Happy or Not?

A recent bestseller in China entitled Unhappy China (中国不高兴) created a stir a few months back. Not having read it, my understanding is that it was written by five authors who think that China is more qualified to lead the world, and that the West should just step aside and let that happen. I'm not sure exactly why a collective China should be unhappy, but the title of the book just never set well with me.

Even though it comes from a Chinese source, to me the title seems to perpetuate what I thought was a uniquely Western myth, that of China as a monolith. If I have learned nothing else in my years of living in, and traveling to, China, it is that the Chinese are about as individualistic as any other group of people one would ever meet.

From what I understand, though the book has sold well in China, it hasn't been universally well-received in China -- further confirming the fact that not all Chinese are unhappy. Or maybe it's just the fact that the overwhelming majority of China's population probably cannot afford to buy the book.

Like bestsellers in the US, this one apparently had enough legs to spawn a few offshoots. Yesterday I saw these three books at a bookstore in Raffles City, Shanghai.

The first book is the original, Unhappy China. In the middle is Happy China. And on the right is Why is China Unhappy?.

So is China happy or not?

Stupid question.

Monday, May 25, 2009

A Couple of Recent Auto Mergers: So What?

The past week has seen a couple of merger announcements in the Chinese auto space. These are significant, first of all, because they are more than mere rumors: the partners have shaken hands; these mergers will actually happen. Even more significantly, these may portend further movement in China's auto sector.

The first one was announced last week. Guangzhou Auto is buying a 29 percent stake in Hunan Changfeng Motors. A Guangdong SOE is buying a controlling stake in a Hunan SOE, which is significant because until now, many observers, myself included, have thought the greatest barrier to consolidation in the auto industry to be local recalcitrance. That is, despite the Central Government's calls for consolidation for years, it has not happened because local governments have been reluctant to give up control of their prized auto companies.

This particular merger will supposedly give Guangzhou Auto a stronger offering in terms of a domestically branded SUV. In terms of design, however, I'm not sure whether Changfeng will have much to offer. The Changfeng people I talked to were very proud of this atrocious pickup on display at April's Shanghai Auto Show.

The other interesting story is yesterday's announcement of a three-way merger in the parts industry. I won't bore you with their names, which you can see if you follow this link.

Though this is not a cross-provincial merger (all three parties are headquartered in Shandong) this may be an indication that the Shandong government expects consolidation down the road, and that by bulking up the size of their parts company, they may be more likely to come out on top if mergers become mandatory at some point.

There has been a question as to whether the Central Government actually has the power to force mergers, or whether power has become too decentralized. Some insiders I have spoken with believe that, since the Central Government has not forced mergers so far, this means they lack the power. Others believe that the Central Government still has the power, but sees no need to upset the applecart at this point. As long as everyone is making money, the Central Government is happy to "let a hundred flowers bloom".

If that is the case, let us hope the aftermath of this "hundred flowers" campaign isn't quite as destructive as that of its predecessor.

Sunday, May 24, 2009

No One Fully Understands China's Auto Industry

Those who have patiently followed this blog know that I am in China conducting research into business-government relations in the auto industry.

My reason for not posting much recently is not for a lack of material, but for uncertainty about how to frame what I have learned. It also has to do with not wanting to reveal everything I've learned just yet because I would like to save something for my dissertation. (Sorry, but my desire to graduate pretty much trumps my desire to inform the world at the moment.)

I only have a couple of points to make with this post, and they are both very short and very simple.

First, I am starting to become aware that people who work in and around China's auto industry are not necessarily on the same page when it comes to even a basic understanding of how their industry operates. They are much like the three blind men who touched three different parts of an elephant, none of whom was able to tell that he was touching an elephant.

Ask three auto executives from three areas of the same company about the approval process for new models, throw in the perspectives of a couple of expats, and what you have are five different stories that barely overlap.

At first I became disappointed, and a little worried, that I was gathering a lot of conflicting information, but then I began to realize that this phenomenon, in and of itself, is actually quite interesting. There may be an interesting story in the possibility that senior managers across companies have similar insights, quality assurance people have similar insights, manufacturing managers have similar insights, etc.

Also, the fact that they cannot completely agree on which government agencies perform which functions says more than enough about why certain central government policies should be considered mere guidelines. In many cases, it seems the right hand does not know what the left hand is doing.

Secondly, all of the various merger stories about who will buy whom, or who will buy parts of what, are simply a waste of time. I don't know where all of the rumors come from, but I wish those who report them would simply wait for confirmation from the companies themselves.

There seems to have developed a whole cottage industry around trying to predict who will merge, but I don't understand what is to be gained by such handicapping -- unless there is a market for such predictions I am not aware of. Therefore, this particular blog will no longer be party to such speculation.

That said, I have heard directly from a senior leader of a Chinese company that his company, along with a private equity consortium, will be making a serious offer for a foreign company. But since I have just laid down a new rule on such rumors, I'll have to keep it to myself. :-)

Friday, May 15, 2009

GM Exports and China's New Energy Vehicles

GM's China Exports to the US

A few days ago we saw the news that GM is planning to export a surprisingly precise number of cars from China to the US in 2011 -- 17,335, to be exact. Today, Bloomberg reports that GM is negotiating with the UAW over the number of cars to be exported from China.

A few days ago, the number of cars to be exported from China was, as far as anyone knew, zero. How clever of GM to suddenly introduce this straw man into the negotiations! I'll admit that I'm not a big fan of the UAW, but I'm pretty sure they're smart enough to figure this out.

China Will Lead the World in New Energy Vehicles. China Daily says so.

Last week I posted my views that the new energy vehicle market is not China's for the taking. Today, China Daily offers the opposite view, supporting its view with many of the arguments I countered last week including the fact that China's plan calls for the production of 500,000 electric cars annually by 2011, and the fact that "Warrant" Buffet has invested in BYD.

Their ace-in-the-hole, however is the fact that Peter Stevens, British designer of Lamborghini and Lotus models, was wowed by the electric bicycles he saw in the streets on a recent visit to China.

Maybe I need to re-think this...

Wednesday, May 13, 2009

Notes from the Field

I've hit a lull in my China auto research as many of my initial contacts have played out, and finding new ones is a painstakingly slow process. I never thought this would be easy -- indeed, if it were, someone else would have already done it -- but I never imagined it would be so difficult just to get people to talk to me. I expected the difficulty to be in getting them to open up once I already had the interview.

Having discussed this with a few people, I find the consensus that, despite China's tremendous development and "opening up", China is as closed as ever when it comes to discussing the internal workings of this country. Perhaps this is a key answer to why the rest of the world still hasn't welcomed the "new China" with open arms: open societies have difficulty trusting those that are closed.

Political commentary aside, here are some random auto-related items that have caught my attention...

GM Plans to Export Cars from China to US

According to the SCMP, GM is planning to export up to 17,000 China-built autos to the US beginning in 2011. This would make GM "the first automaker to begin exporting to the US from China".

From a Chinese perspective, I think this move is a godsend, and China's government should be doing all it can in the background to facilitate this (and maybe it is). The difficulty that Chinese brands will have in the US is establishing trust. It strikes me as a good interim move to have Chinese-built, American-branded cars accepted first by US consumers.

While the idea may seem crazy to Americans right now, just remember how much we laughed at Japanese cars in the 70s and Korean cars in the 80s. We're not laughing now.

Furthermore, I am convinced that the quality of cars being built by American workers is second to none. Once Detroit legacy costs have been offloaded (subliminal guy coughs "UAW" under his breath), the Big 3 (or whatever remains of them) will be among the most competitive in the world.

Chongqing to Subsidize Buyer of Changan Hybrid

As reported by, the city government of Chongqing has announced its intention to subsidize the purchase of hybrid vehicles. This subsidy of up to 36,000 RMB ($5,270) comes on top of generous subsidies expected to be confirmed by the Central Government as early as next month.

There's just one catch. The subsidy will only be given for hybrids made by one company, Changan, which is headquartered in (drum roll)... Chongqing.

Local protectionism continues to rear its ugly head.

Speaking of ...

This venerable auto-related website decided my most recent post "Will China Lead the World in New Energy Vehicles?" was worth reposting on its own site. For this, I am honored because I look to as an authoritative source for China auto-related news and information.

While I am grateful to Gasgoo for listing yours truly as the author of the piece, I was disappointed that they listed its source as "", and that they also neglected to include a link back to my website. Despite a comment I left on my story at their website, and an email I sent to them several days ago, they have failed to extend to me the same courtesy that I give to them when I cite their stories.

How 'bout it, guys?

Friday, May 8, 2009

Will China Lead the World in New Energy Vehicles?

China's auto companies have captured the world's attention in recent months with announcements of alternative energy vehicles, and China's government is making a concerted effort to lead and incentivize development in this sector.  Some commentators have even speculated that this nascent industry may be China's for the taking.  (Okay, maybe I've even joined in the cheerleading a bit myself.)

China's new comprehensive auto policy released in March contains not only a target for producing as many as 500,000 "new energy vehicles" (新能源汽车) per year by 2011, but also contains provisions for research subsidies, infrastructure support and consumer incentives.

And it seems that China's automakers have heard the government's message loud-and-clear. Hardly a week has passed since the beginning of 2009 without at least one announcement from a Chinese automaker about the development of some type of new energy vehicle, battery technology or green R&D project.

Furthermore, Shanghai's recently ended Auto Show saw the exhibition of some 50 different models of new energy vehicles from hybrids, to fuel cells, to pure electrics.  Almost every manufacturer had at least one vehicle on display with unmistakeably green-sounding words emblazoned on the sides.

Another argument one often hears favoring China's future leadership is the "leapfrog" argument. China was able to leapfrog directly to mobile phones because it had not been saddled with legacy fixed-line telecom assets.  Now China is poised to do the same with new energy vehicle technology.  China will benefit from a "level playing field" in terms of new energy vehicle development because the technology is still in its infancy in the developed auto markets.

If none of the above is argument enough, I have two words:  Warren Buffet.

Buffet is not the kind of guy to go throwing Berkshire-Hathaway's money around for social causes. When he invests, he fully expects to earn a return.  This is why he has very publicly decided to buy up to ten percent of Shenzhen's BYD, the only company in the world to have put a plug-in hybrid into production.  Surely this is enough reason to believe that the Chinese have a leg-up in the race to build an affordable new energy car.

I hate to be one to stop the music while the party is getting underway, but I have yet to see any convincing evidence that China can inevitably lead the world in this technology.

First, anyone who watches China closely enough knows that China's Central Government does not control everything that happens in the country.  For example, the very same policy document that contains the new energy vehicle provisions also contains a provision for consolidation in China's auto industry. Even before this document was released, the Central Government had been preaching for years of the need for consolidation among China's 100-plus vehicle assemblers. Since the turn of this century, there have been exactly two mergers among major auto manufacturers.

Just because the government has proclaimed its desire to develop a world-leading new energy vehicle industry does not mean that it is destined to happen.

But what about all those announcements from China's auto companies about their new energy projects?  

Earlier this week I had a conversation with a local "expert" in China's auto industry, someone who has advised the NDRC on China's auto and high technology policies.  In answer to this question he asked me, "who is selling these cars in China?  Who is buying these cars in China?  All the companies are talking about it, but very little is actually being done.  (Conversation in English, speaker's emphasis.)


His belief is that the auto companies see all of this new energy talk as a possible key to preferential policy.  If they are seen to be working hard toward this goal, it may be of some benefit to them in the future.

Furthermore, he says, "if the United States, Japan and Germany have not yet figured out a way to get consumers to buy these kinds of cars in large numbers, what makes you think China can do it?" The fact that Chinese want to sit in cars in heavy traffic during a time that Chinese cities are spending billions on subways and other public transportation should tell you that environmental protection is not a high priority for them.  "They will not pay a premium for a car in order to help the environment.  If they could afford the premium, they would use it to buy a bigger car or a more famous brand."

And while the government has offered some pretty generous subsidies to cover the gasoline vs new energy price differential, some have questioned whether it would still be enough to convince consumers to pony up for the environment.

What about all those new energy vehicles displayed at the Shanghai Auto Show?

I have to admit that the auto show left me a bit skeptical of some of the displayed offerings.  I talked with someone at the First Auto display about their "hybrid" vehicle, and though she had approached me first and asked if I had any questions about the vehicle, she actually knew very little about it. (Thinking it was a language issue, I switched to Chinese which seemed to make her all the more eager to get away from me.) 

At another manufacturer's booth, I noticed that their "plug-in hybrid" appeared to be just a regular SUV with a fancy paint job and an electrical cord emerging through the front grill.  I was tempted pull on it to see if it was connected to anything.

What about the "leapfrog" argument?

I must admit that this one makes some sense at first.  I remember being a little embarrassed that blue-suited farmers on a train had better mobile phones than mine back in 2002.  However, there's a big difference between buying a new technology invented elsewhere (as mobile phones had been) and developing a new vehicle technology to the extent that consumers can afford it and would willingly choose it.

And while I have the utmost respect for Chinese engineering prowess, I don't believe that they have already won the race.  Furthermore, assuming the Chinese surmount the engineering challenges, there's also the marketing challenge.  The Japanese have been at this for longer than anyone else, and they still haven't figured out how to get Americans outside of California to buy the Prius.

What about Buffet's investment in BYD?

This one has me scratching my head.  So far, BYD has sold few (if any) of their F3DM plug-ins to consumers.  (I saw a recent report that said they had only sold 80.)  While this vehicle may indeed be available for sale, I am beginning to have doubts as to its marketability.  If people really wanted them, would not BYD have figured out how to ramp up production by now?

So what's in it for Buffet?

My guess, and it's only a guess, is that BYD's battery technology may be Buffet's consolation prize. Remember that BYD was a battery company for over a decade before buying a small state-owned car manufacturer in Xi'an.  From someone who has visited that factory, I understand that, while the vehicles were basically junk when BYD took over, they have made significant improvements in quality.  However, I think that where BYD may be able to make a bigger splash in the world is to license its battery technology to a much bigger auto company with the scale to crank out vehicles at a price point at which consumers almost want to buy them.

BYD simply doesn't have the scale, and despite Wang Chuanfu's ambitions to overtake Toyota within a few years, they will need a lot more Warren Buffets to come forward to fund such expansion.  His best bet may be to sell his technology for a cut of every vehicle that a Toyota or a GM can sell with his technology.

Don't get me wrong, I want to see a green vehicle revolution as much as anyone.  I just don't believe that China has a lock on the future of this market.  At this point, it's too early to declare a victor, and China has no natural advantage in this race.

Sunday, May 3, 2009

Chinese Auto Dealer Generalizations / Shameless Waiguoren Biaoyan

Yesterday I made a one-day trip to Suzhou to meet the friend of a friend. The arrangement was to take the train to Suzhou and a taxi to the venue of Suzhou’s third annual auto show. There I was to meet a man who either works, or worked, for Nanjing Auto – I was never quite clear on that part. This was a particularly interesting prospect as I have been interested to learn more about the December 2007 merger between Shanghai Auto and Nanjing Auto – one of only two big mergers to have happened in China’s auto industry so far this century.

The Train

First I must comment on the train. It had been about eight years since the last time I took a train in China. In fact, the last time I took a train, it was from Shanghai to Suzhou, so I figured I knew what to expect. And, as with pretty much all of my assumptions about China, a new reality proved me wrong.

This train is a high-speed luxury train that looks very similar to Japan’s Nozomi Shinkansen, though not quite as fast.

The train is called “CRH”, and signs in both the train station and on the train itself identified it as such, but I could never figure out what CRH means. There were no Chinese character phrases that I could find whose pinyin equivalent corresponded to CRH.

The train’s Chinese name was, unfortunately, “和谐号” (harmony). I say “unfortunately” because, as with most top-down propaganda concepts, this one is being applied to every bus, train, park and outhouse that needs a name, to the extent that it risks inducing cynicism among many in the general population. Even the best of ideas can be oversold, and this still seems to happen quite often in China.

The Dealership

As it turned out, the friend of a friend whom I was supposed to meet is the “owner” of a local, domestic brand auto dealership who promptly introduced me to the general manager (GM) of his dealership. The general manager quickly walked me to his car and drove me away from the auto show to the dealership where I spent the better part of the day trying to 1) desperately think of questions I would want to ask of an auto dealer (since I had not been prepared to meet one) and 2) translate those questions into Chinese in one part of my brain while having an actual Chinese conversation with another. (For those of you who haven't turned 40 yet, it's hard.)

The dealership I visited is located away from the center of Suzhou in an arrangement similar to an American “auto mall”. This strip of road, about a mile long, had a dozen or more dealerships selling all of the foreign and domestic brands I would have expected to see: GM, Ford, BYD, Changan, Roewe, MG, Volvo, Chery, Great Wall, Volkswagen, Toyota, Nissan, etc.

In yet another mind-blowing revelation, I discovered Chinese auto dealerships to be far more sophisticated than I would have expected. (I have to be careful with generalizations here because I haven’t visited any other dealerships yet, but in many cases I asked whether what I saw was typical of other dealerships, and the answer was generally “yes”.)

This particular dealership, whose name I won’t mention for the sake of privacy, had a large and inviting showroom with comfortable leather chairs, a coffee and champagne bar, a flat-screen TV and a kids’ play area. And it was staffed with several young, friendly, energetic sales people, both men and women.

While the showroom seemed typical of most American showrooms, the service area completely surprised me. First, the area where the cars are serviced was huge and clean.

It looked like it could have accommodated more than 20 cars (picture only shows about half of the area); however, it only held about three or four. I asked the GM why he had such a huge service area and so few service customers. He said it was because the number of car owners in China is still relatively few, but that they built a large service area to serve the inevitable future growth in business. He said that the other dealerships in the auto mall were similarly designed.

He then showed me the customer service waiting area, which again, was very large, had comfortable leather chairs, yet another coffee bar, yet another flat-screen TV, several internet workstations and a huge floor-to-ceiling glass wall that allowed all customers to look into the service area and watch their cars being worked on.

Of course, as with the service bays, there were no customers in sight. Still, the amount of preparation and forethought that went into planning for future customers was more than I ever expected to see. I haven’t personally visited more than a few dozen auto dealerships in the United States, but I have never visited one so well appointed. I have certainly never visited a dealership that encouraged customers to observe the work being done on their cars. (This may be because I have never owned a car for which I wasn't willing to pay cash.)

Though I don’t want to completely reproduce all of my notes here (I have to save something for my dissertation!) here are a couple of other learnings that I thought were interesting.

I noticed that the dealership’s inventory was rather small (fewer than 20 cars), and asked whether customers were able to order cars direct from the factory. The GM said that, yes, customers could order a car and get it in about a week. Only a week?! I thought I had misunderstood, so I asked whether this was done by swapping cars with another dealership. No, he said, that is an order direct from the factory. Wow!

I am not certain whether that is possible with any other manufacturer – American or Japanese – but perhaps my readers can set me straight on this. All I remember about ordering cars from a factory is when my dad, who was an Oldsmobile man, ordered his company cars from an Olds dealership back in the ‘70s and ‘80s. Seems like it took at least a month or two back then. I don’t get the sense that factories are much faster nowadays, but I could be wrong. And even if they are faster (and I also realize the demand for particular models is an important factor), the fact that a Chinese factory can build a car to order and deliver it in a week is quite impressive.

Another question I had for the GM was about consolidation in the auto industry. I asked him why, despite the central government’s strong desire to reduce the number of players in the industry, this had not happened yet.

Without even pausing to ponder the question, he said the answer was very simple. These companies are able to make a profit selling cars – demand is still greater than supply in China. When that changes, we can expect to see attrition in the auto industry, and not necessarily consolidation. After all, who would want to buy a loss-making car company – unless, of course, they have some kind of technology that may be valuable if exploited by a larger, stronger company.

Just taking the GM’s assertion at face value, this makes me wonder whether some of the smaller players simply don’t account for the cost of capital. Is it possible for a small manufacturer to generate a positive cash flow from turning out just a relative handful of cars every year? (And if so, who would want to buy their cars, and why?)

Again, perhaps some of my readers may wish to opine on these questions.

The Auto Show

After my time at the dealership, I was returned to the auto show venue where I was treated to an exhibition put on by MG, one of Shanghai Auto's domestic brands (which was bought from the UK in 2005). Several stunt drivers delighted the crowd by whizzing around a parking lot in front-wheel drive, 1.4 liter MG3s and a rear-wheel drive, rear-engine, 1.8 liter MG TF which I think is a descendant of the old MGB Roadster.

One drove on two wheels within about 10 feet of dozens of spectators.

And two others moved back-and-forth on a teeter-totter.

As luck would have it, I was the only “waiguo pengyou” (foreign friend - a phrase I have come to detest) in the audience, so I was drafted to ride in the one of the teeter-totter cars. In my defense, I couldn’t hear what they were asking me to do due to loud music; I assumed they were offering me a better vantage point from which to take pictures. It was indeed a better vantage point.

After the ride, I thanked my driver whose non sequitur of a response was, "我们来自台湾". (We're from Taiwan.)

The Japanese Dinner

I returned to Shanghai on the cool CRH train and treated myself to some wonderful Japanese comfort food after a long and exhausting day (grilled salmon, yakitori, miso soup, rice). Upon being greeted with the familiar “irrashaimasse”, I instinctively spoke a confused mixture of Chinese and Japanese, which, while completely intelligible to the bilingual waitresses, drew attention I was not expecting.

They immediately wanted to know why a guy like me speaks Chinese and Japanese, but I was quick to tell them that my Japanese had atrophied from non-use. I guess that didn’t put them off because I really don’t know how to order Japanese food in Chinese. Draft beer will always be “nama biiru”, and grilled chicken will always be “yakitori” to me.

Then, when I picked up my chopsticks with my left hand, well, that just put them over the top. For the rest of my dinner I had a crowd of about six girls watching me eat while the other four tables of customers were basically ignored.

Feeling satisfied with my comfort food, and a little giddy from the nama biiru, I decided to ham it up on the way out. I made my exit with a slight bow from the waist and a well-honed “gochisosamadeshita”. My ego basked in the ensuing chorus of “waaaahs”.

Sometimes this kind of attention is embarrassing – like when I was drafted to ride in the teeter-totter car while there were dozens of locals standing around who would have given their eye-teeth for such an experience. Sometimes it’s kinda nice – like when half a dozen twenty-something girls think you’re pretty cool (something that never happened to me even when I was twenty-something). Regardless, I’m always happy to get my anonymity back when I return home.


I realize this post was a bit long, so here again is the big question on which I would love to get anyone’s feedback:

What accounts for the general manager's assertion that most, if not all, Chinese auto companies are “making a profit selling cars”? Is it conceivable that a small-scale auto manufacturer could produce a positive cash flow if the cost of capital is basically ignored?

And, of course, I welcome feedback on anything else as well. Thanks for reading!