China’s Auto Export Drive Sputters In Detroit

China auto export drive runs out of gas

A slew of year-end news about China’s auto industry is shining a spotlight on the tough times that domestic car makers are facing not only at home but also abroad as they grapple with tough competition and other market factors. Domestic nameplates like Geely (HKEx: 175), Chery and BYD (HKEx: 1211; Shenzhen: 002594) have steadily lost share in their home market over the last few years to big foreign names like GM (NYSE: GM) and Volkswagen (Frankfurt: VOWG), but posted strong export gains as they looked to overseas markets to partly offset the declines at home. But now even the export picture is looking bleak, with the latest word that no Chinese car makers will attend the industry-leading North American International Auto Show in Detroit this week. (English article)

From a practical perspective, the absence of Chinese car makers from the world’s premier auto show isn’t big news since none of these companies have any meaningful sales in the US. But the absence carriers large symbolic meaning, since Chinese automakers have been hyping the big potential of exports for several years now and China has been represented at the Detroit show by at least one or more major domestic names over each of the last few years.

I couldn’t find any full-year figures for China’s car exports in 2013, but the year certainly won’t be remembered as a good one for Chinese automakers. Passenger car exports plunged 17 percent in the first 10 months of the year to 344,400 units, with the declines accelerating through the year. In October alone, passenger car exports tumbled 44 percent, as total vehicle exports were down 18 percent for the month. That’s certainly bad news for names like Chery, which liked to talk about the big potential of overseas markets.

Chinese automakers and analysts cited a number of reasons for shunning this year’s show in Detroit, ranging from bad timing and difficulty entering the US market, to a desire to avoid ridicule from car industry writers. I suspect one of the biggest reasons Chinese auto makers are skipping the show is purely economic, since such attendance is quite expensive and many of these companies are already trying to control their costs due to China’s economic slowdown.

After zooming onto the world stage with strong export growth in 2011 and 2012, Chinese car makers discovered last year that selling their products overseas isn’t as simple as they thought. Such exports require strong after-sales service networks that most of the Chinese companies lack, and overseas safety standards are often tougher than those in China, especially in the west. Then there’s also the protectionist element.

Chery and Great Wall Motors both had to grapple with recalls of their exported vehicles in Australia after carcinogenic asbestos was found in some (previous post). Meantime, some emerging markets like Brazil have imposed tariffs targeting the Chinese manufacturers in a bid to encourage development of their own industries. Most recently, BYD, the clean energy vehicle maker backed by billionaire investor Warren Buffett, ran into problems in the US when it was attacked for illegally underpaying some of its workers. (previous post)

With all those negative signs on the horizon, 2014 certainly doesn’t look set to be a very positive year for Chinese car makers’ global ambitions. I expect we’ll probably see a continuation of the sales declines for at least the first half of 2014, though perhaps the situation will stabilize towards the middle of the year. Regardless of the near-term trends, I do expect it could be at least 5-10 years before China makes a serious play again for the global auto market, which will require much more investment of both time and money than any companies want to spend right now.

Bottom line: 2014 is likely to see China’s auto export drive continue to sputter, with a major turnaround unlikely for at least the next 5 years.

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