D’oh: China Feels The Pain

Despite unmitigated appetite for anything that has wheels, the Middle Kingdom is no longer immune to the world’s motor malaise. Steelguru.com is an Indian website that tracks the steel market and that has a professional interest in anything that stamps and grinds that metal. They got ahold of Cheng Xiaodong, who is (get ready for this) “Head of the vehicle price monitoring arm of the National Development and Reform Commission” of China. That head opined that the Chinese auto industry is ripe for a big consolidation. That unsuspected revelation prompted Huang Zherui, analyst at CSM Asia in Shanghai, to likewise gaze in his crystal ball: "In a downturn, only strong players can survive, local carmakers may be hit the most by slowing demand as buyers of their vehicles have less purchasing power than motorists opting for higher end products." Wow. Who would have thought that?

No need to increase your sodium pentothal to see the truth: China’s Top Ten carmakers (SAIC, FAW Group, Dongfeng, Chang'an Automobile, Beijing Automotive, Guangzhou Automobile, Chery Automobile, Brilliance, Hafei Motor, and JAC) hold a combined share of 84% of China’s still chugging along car market. This according to Gasgoo, who analyzed new data released by the China Association of Automobile Manufactures (CAAM.)

At last count, China sported 52 brands, obscenely more than any other country on this planet. Some more may have been missed in the count. With 42 makes fighting for the crumbs that fall off the Big Ten’s tables, Mr. Cheng can be 99% sure of the consolidation he predicts, and his government desires.

Even China’s Big Ten feel the pain:
- A higher sales tax on big cars caused sales of big displacement luxury cars drop by more than 50 percent, Xinhua reported.

- FAW’s third quarter net profits are down 4 percent, says Reuters via Gasgoo.

- Ford is slashing output at Changan Ford Mazda, a ménage à trois between Ford, Japan's Mazda Motor Corp and Changan Automobile Co .

- China’s car export numbers are “discouraging” says Gasgoo.

Unfazed by groundless pessimism, China’s State Information Center still forecasts that the country’s auto output and sales will grow by 10%. In a (by Chinese standards) rare expression of “what have you guys been smoking” Gasgoo comments: “It is a phenomenon if China’s auto market can maintain a growth rate by 10% this year amid a global auto market downturn.”

China’s New Deal: Next Time, Try The Train

China decided to drop some serious money on digging the country out of a hole. We’re not talking namby-pamby bailout money for distressed banks and auto companies that may actually go up in price (yeah, sure.) We’re talking real hard asset investment. China’s State Council has approved $300 billion for large scale construction projects to seriously boost economic growth, China Daily reported.

Everybody had been banking on concrete measures to expand China’s clogged roads. But to the abject horror of China’s motorists, the government’s money will be working on the railroad.

"In 1997, we dealt with the Asian financial crisis by stimulating domestic economic growth by investing in the construction of highways.” Zheng Xinli, a senior government policy advisor, said. “This time the money will go on improving the rail network." Using the CIA Factbook's numbers, 1/10th of GDP will be railroaded through China’s economy.

As New Haven, Connecticut, woke up to the Sunday news, shit-eating grins dominated the breakfast tables: This February, Yale University’s college endowment fund had sunk $50 million in the IPO of the China Railway Construction Corp., which is set to get about half of the pie. That deal should keep Yale well endowed.

Of the $300 billion, $180 billion have already been allocated; the rest should be earmarked and spent in no time flat. By 2010, China wants to expand its 48,000-or-so miles of rail by another 8,000 miles. That, my fellow Americans, would be the distance from Anchorage, Alaska, all the way to Peru. And they’ll have that done in 2 years. Right of way? No problem: All land belongs to the government.

I Told You So: Beijing's Car Sales Going Through The Roof

In a previous missive, I predicted that Beijing's car curbs might actually increase sales. Just as it did in Nigeria 30 years ago. I didn't think it would happen so fast. This is what is posted today in TheTruthAboutCars.com, which just hired me as cheap Chinese labor:

Beijing’s 30% New Car Sales Surge Explained
By Bertel Schmitt October 24, 2008

“Brakes come off auto sales” the semi-official, English-writing Chinese newspaper China Daily headlines today. “Beijing car sales, which account for about a tenth of the national tally, are surging this month after the end of Olympic traffic controls and because of rumors about new caps on vehicle numbers, ” reports the newspaper, citing the head of China’s largest car dealer. Beijing Asian Games Village Automobile Exchange, an 80k unit megadealer in China’s capital, has seen sales increases of 30 percent this month, and there’s still another week to go.

Beijing’s buyers are stampeding back to the showrooms, after half of the cars had been banned from Beijing’s streets during the Olympics. Following the Olympics, a Kafkaesque car ban on Beijing’s byways and highways was instated, driving demand for second cars. Or for two cars at a time. Rumors that Beijing’s city government could limit new vehicle registrations to 100k a year, about a third of the city’s average annual vehicle sales, also unleashed a storming of the showrooms.

“We don’t know how the rumor started or whether it’s true, but it’s certainly working in terms of boosting sales,” said Su Hui, General Manager of the megadealer.

So far, the only city in China which rations vehicle ownership is Shanghai, a.k.a. Gridlock-City. In Shanghai, each month 5k to 6k license plates are auctioned off. Shanghai plates are fetching higher prices than small cars. According to the official news agency Xinhua, the average price of a Shanghai plate is 47,711 yuan ($6253),. Chery’s QQ subcompact, one of China’s Top Ten sellers, goes for 39,800 yuan. Shanghai’s scheme hasn’t done more than boosting the city’s budget: Motorists simply register in other towns.

If America runs out of ideas of how to jump-start the auto business, maybe they could rip that page from China’s playbook. Or not.

Now I've Got Heartaches By The Numbers

Troubles by the score

A few months ago, sitting in a conference of respected (excluding me) Chinese auto journalists, I said: “How many car companies are there really in China? I hear two numbers. 60 and 120. What’s the real number?” They all shrugged their shoulders. As long as 20 years ago, auto makers prophecied that the world would have space for maybe 10 car companies max. Now in China, we can't keep track of them.

How many cars in China? Likewise a mystery. You’ll read numbers between 20 million and 150 million. Most of this is a lack of systems. They simply can’t track yet. Some is lost in translation. The fine nuances of “vehicles,” “motor vehicles,” “cars,” “passenger cars,” “private automobiles” easily turn into roadkill - especially when the translator makes only $200 a month and rides a bicycle to work.

The number I trust this week is 60-some million vehicles-with-more-than-two-wheels in China. That includes some 15 million three-wheelers and low-speed delivery contraptions.

Every day you love me less, each day I love you more

How many private cars? Last February, gasgoo.com had two numbers in the same article: “February 29 (Gasgoo.com) - The total number of private cars in China jumps 32.5% to 15.22 million units by the end of 2007, according to Chinese government statistics released yesterday.” And, in the next paragraph: “By the end of last year, total number of vehicles on roads of China has reached 56.97 million units… Of these vehicles, 35.34 million are private cars.” Shen me? (Polite Chinese for "WTF?")

But the day that I stop countin', that's the day my world will end

Here is another nice one from last year: “Sources from China’s Public Security Ministry said that the recorded number of vehicles in use in China is 150 million in the first half of 2007, of which 53.558 million are autos and 83.548 million are motorcycles.” Hmmm … and the other 12.9 million? Rollerblades?

Be it as it may, China has 1.3 billion people (or 1.5, or 1.6 - nobody knows for sure) The G7 average is 610 cars per thousand people. The US tops the list with 740 cars per 1000 men, women, babies, convicts, and near-dead. (No wonder the market stalls when 3-garage homes go into foreclosure - it’s lack of public parking!)

Using the internationally accepted number of a market nearing saturation with 500 cars per thousand inhabitants, China has room for 650 million cars! Or 750 million. What the heck, a few hundred million more or less don’t matter.

GM Sends Fuel Cell Equinox On Chinese Vapor Trail

Starting in China’s capital Beijing, General Motors kicked-off their “2009 promotional tour” of China for its Chevrolet Equinox hydrogen fuel cell car. GM will send the Equinox across the world’s fourth largest country to drum up interest for the mid-size crossover SUV that uses the same fuel cell as the elusive Chevrolet Sequel.

China needs no introduction to the technology. China’s first working fuel cell car – based on a venerable Santana 2000 (pictured left) – had been developed as early as 2003 by researchers at the Anting Automotive College of Shanghai’s Tongji University.

The Anting College developed hydrogen fuel cell engines for a number of domestic cars, such as SAIC’s Roewe, the Chery Easter, and SAIC’s VW Passat.

22 hydrogen fuel cell powered Passats (left) had been used to ferry around VIPs during the Beijing Olympics.

In cooperation with Shell, the Anting College even set up a small network of hydrogen gas stations (left) in Shanghai on a trial basis.

The Equinox Fuel Cell is designed for 80,000 km of driving. The system developed in Anting successfully passed a 100,000 km equivalence test (left.)

GM said that in the next two years, they will introduce several Chevrolet Equinox hydrogen-fuel cell cars to China. That’s “cars” – not “models.” Nobody knows what the car will cost, or where in the vast reaches of the middle kingdom the hydrogen stations will be placed. The Chevy Equinox needs a fill-up every 200 miles. Industry observers believe that for the foreseeable future, the car will be what comes out of its exhaust pipe: Vapor.

Getting Out Of Dodge. Heck, All Of Detroit.

While billionaires defect Detroit, Chinese women buy new cars with 3 months of breastfeeding.

In a sign that the worst is yet to come, turn-around artists are turning their backs on Detroit’s auto makers. Billionaire Kirk Kerkorian is unwinding his holdings in Ford Motor Co. , after his nearly one billion dollar investment (made when he thought Ford was cheap) lost two thirds of its value and is heading further South. Kerkorian had to pledge 50 million shares of his MGM Mirage Casino to back the credit line he used to buy into Ford. The house is clearly on fire when supposedly recession-proof investments in vice are pawned to prop up auto makers. (However, even vice isn’t what it used to be.)

Stephen Feinberg’s Cerberus, urged by JPMorgan Chase & Co. and Citigroup Inc., which hold a lot of the debt from Cerberus's purchase of Chrysler from Germany's (then) DaimlerChrysler AG in August 2007, is desperately trying to unload Chrysler and foist it upon GM. Cerberus is also talking with Nissan Motor Co. and Renault SA about a linkup, but that’s just viewed as a side show to lend more urgency to the wedding with GM. The Chrysler/GM nuptials have been talked up in the mainstream press as a gift from heaven, as a “win-win” situation full of “synergy” potential. These words rank big in the Dictionary of Corporate Bullshit - the smart make a runner for the door when these words are used. In a particularly apt analogy, our friends over at TheTruthAboutCars liken the Chrysler/GM shotgun wedding to the “Titanic rescuing the Lusitania.” (If Google is an indicator, they should trademark the term.)

“Typical investors, and Cerberus is anything but typical, are running from the automotive industry,'' said Warren Feder, partner at Carl Marks Advisory Group LLC in New York. “It's hard to see any upside with a degree of comfort, and you need that to make an equity investment.''

U.S.A.: Less than 11 million cars in 2009?

JPMorgan Chase & Co, who should have a vested (see above) interest in painting a rosy picture of the auto industry, just did otherwise. U.S. auto deliveries may fall to an annual rate as low as 10 million vehicles this quarter and as low as 11 million next year, Himanshu Patel, an analyst at JPMorgan Chase & Co. in New York, wrote in a report on October 21, 2008 . A few days before, J.D. Power and Associates still had estimated 13.2 units sold in the U.S. for 2009. Patel’s 2009 estimate would be the lowest rate since 1982. The predictions get worse by the day.

China may sell more cars in 2009 than the U.S.

If Patel is right (and, see above, his firm has a lot of hard earned insider knowledge about the auto business,) and if China maintains a – by Chinese standards – rather sedate growth rate , come 2009, the Chinese auto market might be the same size or even larger than the U.S. The China Association of Automobile Manufacturers, had targeted 10 million units for 2008, but with growth slowing in China, the Eastern Empire may not quite make it this year. Next year, unless the sky will fall, 11 million are entirely doable.

U.S. auto industry goes hungry. Babies too.

In the meantime, according to Bloomberg, the exit of Kerkorian, Cerberus & Co. “may leave the U.S. auto industry without new funding just as sales head to a 26-year low.”

Here comes a really disturbing bit of data: "Most consumers are worried about: 'Will I have enough to put food on the table so my family can eat?' Eduardo Castro-Wright, President and CEO of Wal-Mart's U.S. operations told attendees of a luncheon sponsored by Town Hall Los Angeles. His stores see spikes of sales of baby formula when paychecks come in, “suggesting consumers are rushing to buy such necessities as soon as they have the cash,” Reuters reported.

“As the economy worsens, Wal-Mart's customers have increasingly shown signs of living paycheck to paycheck. Wal-Mart's sales typically surge around pay periods at the beginning and middle of the month. Castro-Wright said that spike has become more pronounced as consumers' budgets become more stressed.”

Buy a new car with 3 months of breastfeeding.

Contrast this to China. In the wake of the milk worries, affluent Chinese parents of babies more and more turn to “milk mothers” or “Nai Ma” who breast feed their new-borns if the real mother doesn’t want or can. Baby formula? No, thank you. Or "bu, xie, xie," as they say. They want the real thing for their one child only. In Beijing, a milk mother from the provinces can make between $300 and $1600 a month, with free room and board. A secretary in Beijing starts at around $300 a month, and must use the money to pay for food and shelter.

Back to cars: A family that barely can feed their babies is unlikely to worry about a new ride. A Chinese milk mother can buy a new car for cash with three or 5 months earnings. While the International Breastfeeding Committee of WHO/Unicef recommends breastfeeding for six months, Chinese hospitals recommend a year or more. After a year’s of not really hard work, the milk mother will have two or three cars. Meanwhile, back in the U.S. of A. , parents need parts to keep their cars running, at least twice a month, for a trip to Wal-Mart.

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Pictures by epicharmus, Dr. Keats, Brave New Films. Thank you!

Doing Business In China? Check Your Website

China had some 200 million Internet users in 2007, and is expected to have 500 million in 2010. If you do business in China, you need to have a website. Without a website, you don’t exist.

But can they read it in China? I’m not talking translating the website into Chinese (which would be a good idea.) I’m talking: Is your website accessible from China at all?

Again and again, friends and business associates send me the address of their website – and often, it cannot be accessed from China. As far as China is concerned, they don’t exist. The site works fine in the U.S. or Europe. It doesn't work in China.

Why is that?

There is something called the Great Firewall of China that filters out objectionable stuff. Could that be the reason?

"No way," my friends say. The stuff on the sites of my friends is benign. Usually auto parts. No reason to filter it out. The truly paranoid say: "They just want to keep out competition." Not so.

At closer inspection, it turns out that my friends' website is hosted with a cheap hoster. At the hoster, the IP number of the website is shared with many other sites. You can find out by using http://www.myipneighbors.com/ . Now if one of the other sites peddles porn, or sensitive political matters that raise the eyebrows of China’s internet watchdogs, the firewall blocks the IP of the objectionable website – and all the other websites that share that IP are blocked at the same time.

If that happens to you, you are collateral damage.

If you want to do business with China, and if you want your website to be accessible, choose a reputable hoster, best one with a private IP number for your site. Also, have your Chinese friends log into your site frequently to check - another way to drive traffic :)