CASE STUDY

Case study

Case study

Task 1 - P4

China auto manufacturing

Not long ago, Chinese auto-parts were known for their poor quality, lack of precision and relatively high prices in comparison to their US and German competitors'. But these days China is turning out much better auto-parts, and now exports more than it imports for its high-growth domestic auto industry. Heavy investment in computer assembly and machinery have taken Chinese manufacturing beyond the simple consumer goods of years past and into 'the entire range of products, from telecom equipment to textiles.' U.S. employment in the auto-parts industry has fallen to about 644,000 in 2004 from about 721,000 in 2002. Delphi Corp., which has plants in China, is in bankruptcy protection, and smaller suppliers are finding it increasingly difficult to compete with China. Meanwhile, rising wages have forced Chinese manufacturers to seek out higher-value products, such as car parts, and increase productivity to reduce reliance on low-cost labor. (Brandt, Loren et al, 2008, 76-89)

Chinese are able to produce manufactured parts more cheaply and good quality

China's auto industry is revving for international expansion. After years serving as the country where the world's cars (or at least a large number of their parts) were made, China's auto execs are eyeing established international carmakers to take over. Reuters recently listed several such proposed mergers, with Geely Automotive's parent company approaching Canadian auto parts maker Magna International about a stake in Opel (Magna isn't interested), and preparing a bid for Ford's Volvo unit.

The reputation of China's auto parts manufacturers suffered whenToyota had to recall 700,000 Chinese-made cars with faulty electrical window switches, and after the US National Highway Traffic Safety Administration launched an investigation into flawed tire valve stems made by a Shanghai Baolong Automotive subsidiary. MSNBC reported that the company sold 300 million valve stems prone to cracking, with one fatality attributed to a deflated tire as a result. Two other deaths were tied to treads that separated on tires made by Hanghou Zhongce Rubber, whose importer issued a recall. (Brandt, Loren et al, 2008, 76-89)

These stories don't do much to quell fears that quality and brand image will suffer if Chinese companies take over quality international auto brands like Volvo. But China's image is changing: Goldman Sachs is weighing a stake in Geely, and Warren Buffett's Berkshire Hathaway invested in auto battery maker BYD Co., according to BusinessWeek's David Kiley. China is now where Japan was 30 years ago. Before the economic miracle of Japan Inc., "Made In Japan" meant poor quality and sketchy business practices. It will take time for China to compete a similar transformation. As Kiley notes: Standards for safety, quality and emissions are very different in China than in the U.S., and there is no Chinese automaker that is yet ready for prime time in the U.S. Quality of Chinese vehicles, for example, is often compared with where the U.S. was 20 years ago. China's products are trending toward higher quality, but it may be some time before China's reputation—and that ...