No fear from China

THE spectre of half-price cars from China flooding Australia and other Western car markets was being overplayed and was unlikely to happen, the new man in charge at GM Holden told last week’s AADA Convention on the Gold Coast.

Chris Gubbey, fresh from six years in China where he was vice-president of Shanghai GM, General Motors’ flagship joint venture in China, said that Chinese car-makers faced increased costs to improve the quality and equipment levels of their cars before they could compete in the Western markets.

He said that while the Chinese had lower pay rates, labour represented only 10 per cent of the cost of a car. On the rest of the car, the Chinese car-makers “faced the same cost pressures as every other car manufacturer to get into a developed market”.

“A lot of the cost of the product is in meeting legislative requirements in developed markets and it is about being able to offer all the technical things people want on their automobiles,” he said. “They have to pass the crash tests.

We have already seen some of the failures (in Europe) and they are not going to sell many cars if they are failing crash tests.

“So are you really going to see Chinese cars at half the price that we can produce? I actually doubt it.”

Mr Gubbey said that there was strong pressure for wages in Chinese car plants to increase because the cost of living was rising in cities like Shanghai (where GM has plants) which was becoming “the Manhattan of China”.

“So I think those labour costs are going to climb quite quickly,” he said. “Will we be paying less for Chinese cars? In real terms, you will be getting less if you are paying substantially less. At the end of the day the buying public will start to recognise that.”

But Mr Gubbey warned that there was “no reason to rest on our laurels”. He said the Chinese government has told the local Chinese car-makers to develop their own brands and to export.

“I don’t know the numbers, but I can guarantee you that the Geely and Chery will be given a very specific target of either a percentage of output or numbers of units that the government expects them to export. This is not just a business choice,” he said. “Don’t think they will be happy just in the China market. There will be huge pressure for them to export.

“These guys are going to come and they are going to want to build market share. So they are going to be very aggressive.”

Mr Gubbey warned that the Chinese were also on a mission to improve quality and technology. “For the past five years, you go to any major design and engineering house in the world and these places are full of Chinese. The days of copying are over. They are developing their own product.”

He said that Chinese car companies were employing many retired Japanese engineers as well as Americans and Europeans, and that there were “a lot of expatriates helping the Chinese to achieve those (improved quality) levels”.

“I think the real ones we have to worry about are the Cherys and the Geelys of this world,” he said. “Twelve to 13 companies (out of 100 car-makers) are really chewing up all the market in China and they are mainly the joint ventures. They (Chery and Geely) are expanding very quickly. They have to look outside and the pressure from the government on them is to look outside.”

He said the local Chinese car companies were “making a lot of noise about going to North America or Europe, but there are still plenty of opportunities for them outside China - like Vietnam and Myanmar - with product that does not have to meet the (standards of) developed markets”.

“There are huge opportunities in Asia where they can really blood themselves before taking on the Western markets,” he said.

Mr Gubbey said his best guess on seeing Chinese cars on Australian roads in any numbers at an acceptable level of quality would be four to five years.

“It’s not long, especially if you look at the speed at which they have improved their product by going out to reputable design and engineering houses to design and develop their vehicles,” he said.

Referring to his appointment to GM Holden he said: “A lot of people have asked me: Are you in Australia to bring in Chinese product?“I do not see that as my role in Australia. My role in Australia is to play my part in making sure that we have a profitable sustainable industry here in Australia and that, when they (the Chinese car-makers) come to play in our park, they are going to struggle.”

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