Showing posts with label Car Industry. Show all posts
Showing posts with label Car Industry. Show all posts
The uneven playing field that is trade never ceases to amaze me. China
slaps hefty duties on imported vehicles, which forces anyone wishing to
sell cars in any meaningful volume to make them locally. Yet China
doesn't face the same duties when it exports. China now has a massive
trade surplus, yet the system continues uncontested.
Another
country that follows a similar pattern is Brazil. The difference is
that it has exemptions such as the trade deal with Mexico, signed in
2002. Recently the flow of cars from Mexico into Brazil has increased
dramatically. Mexico has offered to cap imports at their present level.
Brazil wants the number of imports slashed by more than a third, as it
has a large car making industry it is trying to protect. Brazil may pull
out of the trade deal altogether.
The outcome: With China, overseas companies have set up production plants, sold millions of cars and made piles of money. They won't be complaining...until their home markets start to get flooded by Chinese made cars in the future. With Brazil, it's relatively inefficient car industry will be protected by a broken trade deal, if not through mutual agreement.
Another
country that follows a similar pattern is Brazil. The difference is
that it has exemptions such as the trade deal with Mexico, signed in
2002. Recently the flow of cars from Mexico into Brazil has increased
dramatically. Mexico has offered to cap imports at their present level.
Brazil wants the number of imports slashed by more than a third, as it
has a large car making industry it is trying to protect. Brazil may pull
out of the trade deal altogether.
The outcome: With China, overseas companies have set up production plants, sold millions of cars and made piles of money. They won't be complaining...until their home markets start to get flooded by Chinese made cars in the future. With Brazil, it's relatively inefficient car industry will be protected by a broken trade deal, if not through mutual agreement.
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| Is Mercedes taking the wrong road with such models as the CLA? |
Why do people buy premium marques? Because they represent value for money? No, because they not. Are they more reliable? Lexus and Jaguar are, but for most part they are not really any better than some mass market brands. The reason is they represent prestige, they are something to be aspired to. They let others know you are successful.
So why are the German premium marques pricing some of their models very close to everyday brands? As they fight to win a sales race for bragging rights to be the biggest premium car maker. In the short term, people who never thought of buying such cars with their upmarket image are finding them increasingly attainable.
In the longer term, the brand's status must be eroded. That affects the whole range too. If you buy an S-Class for example, you want it to be special. It isn't if models lower down the range are selling not far above Ford prices. The marque becomes simply a brand, as its aura is lost.
No, the fight to be the biggest in the premium segment will have casualties. The most significant will be the loss of prestige for those who venture too close in price and quality level to mass market cars.
There are some car producing nations that allow imports in with low or no restrictions. There are others that protect their domestic industry with high tariffs. Which is better? Well it depends on the size of the country but let's look at a few examples.
Australia: For years it had duty to protect a car industry based around large cars. Relatively low volumes and high manufacturing costs were compensated. However, the government then progressively reduced import duties, while at the same time the large car was losing out to SUV type vehicles. This has led car makers to give up making cars there. Thought: Should an inefficient industry be protected?
Brazil: It has a protected industry and car making is surprisingly expensive. A deal for free trade on cars with Mexico was reneged on as Mexico did much better out of it. Because of few trade deals, about 85% of cars made are for the domestic market, with most exports to Argentina. With both markets not doing well, production is down. Thought: Too many eggs in two baskets.
India: A nation that assists local producers with duties. Most production is for local consumption, yet it wants to be a strong exporter. It cannot have it both ways. It's size sustains it but a more open policy would help. Thought: Imports would not flood the market if allowed due to unique local needs, so why not ease duties though trade deals?
China: It is a strongly protected market against imported cars. Most cars made in China are for local consumption. It is doing fine while the local market keeps growing, but will be hurt badly if a sudden domestic downturn occurs. Why does China protect itself from car imports? The industry no longer needs that protection. Thought: China may one day regret it's anti trade stance in this area.
Korea: It restricts imports while exporting with vigour. A strong South Korea is good for stability in the region so nations allow them to get away with it. However, things are now changing with the US and Europe now getting better terms for exporting vehicles there. Locals fed a diet of Hyundais and Kias will be glad for some choice regarding mass market brands. Thought: Protection has gone on too long.
Japan: Outwardly it is an open market to deal with. It keeps its currency undervalued - which is common in Asia - to help exports and hurt imports. There is a culture of supporting local brands, and there are ways employed to assist in this. Also, if a car makers struggles, often others come to their aid, sometimes at the direction of government. Thought: A unique market, dominated by local brands and a big exporter too.
Mexico: A very open market with trade deals everywhere just about. New car makers are moving in and it has now passed Brazil in units made. Growth potential is strong and it is now a very important part of Mexican manufacturing. Thought: An open car market is working here.
Russia: Through protection it has managed to get many car makers to go there. Generally cars made are for the local market so it is dependent on local consumption. It seems a recent slowdown has hurt producers and some may question their presence there in future. Thought: Local production faltering a bit.
EU: It generally doesn't restrict imports with high duties and car makers have to fight hard. Some car makers have struggled and others done well. Overall European car making has become more competitive in this environment. Thought: A model for elsewhere on the benefits of more open trade.
North America: Canada seems to have hit a ceiling with car making, but the US is still growing. Local producers get a fair amount of support from buyers so making cars in the US makes sense. The rewards are there for car production but a hard market to get established in. Thought: High wages can be overcome with high volume and proximity to the market.
Australia: For years it had duty to protect a car industry based around large cars. Relatively low volumes and high manufacturing costs were compensated. However, the government then progressively reduced import duties, while at the same time the large car was losing out to SUV type vehicles. This has led car makers to give up making cars there. Thought: Should an inefficient industry be protected?
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| The big car going the way of the dodo in Australia |
Brazil: It has a protected industry and car making is surprisingly expensive. A deal for free trade on cars with Mexico was reneged on as Mexico did much better out of it. Because of few trade deals, about 85% of cars made are for the domestic market, with most exports to Argentina. With both markets not doing well, production is down. Thought: Too many eggs in two baskets.
India: A nation that assists local producers with duties. Most production is for local consumption, yet it wants to be a strong exporter. It cannot have it both ways. It's size sustains it but a more open policy would help. Thought: Imports would not flood the market if allowed due to unique local needs, so why not ease duties though trade deals?
China: It is a strongly protected market against imported cars. Most cars made in China are for local consumption. It is doing fine while the local market keeps growing, but will be hurt badly if a sudden domestic downturn occurs. Why does China protect itself from car imports? The industry no longer needs that protection. Thought: China may one day regret it's anti trade stance in this area.
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| The BAIC B40 looks like a Jeep knock off. |
Korea: It restricts imports while exporting with vigour. A strong South Korea is good for stability in the region so nations allow them to get away with it. However, things are now changing with the US and Europe now getting better terms for exporting vehicles there. Locals fed a diet of Hyundais and Kias will be glad for some choice regarding mass market brands. Thought: Protection has gone on too long.
Japan: Outwardly it is an open market to deal with. It keeps its currency undervalued - which is common in Asia - to help exports and hurt imports. There is a culture of supporting local brands, and there are ways employed to assist in this. Also, if a car makers struggles, often others come to their aid, sometimes at the direction of government. Thought: A unique market, dominated by local brands and a big exporter too.
Mexico: A very open market with trade deals everywhere just about. New car makers are moving in and it has now passed Brazil in units made. Growth potential is strong and it is now a very important part of Mexican manufacturing. Thought: An open car market is working here.
Russia: Through protection it has managed to get many car makers to go there. Generally cars made are for the local market so it is dependent on local consumption. It seems a recent slowdown has hurt producers and some may question their presence there in future. Thought: Local production faltering a bit.
EU: It generally doesn't restrict imports with high duties and car makers have to fight hard. Some car makers have struggled and others done well. Overall European car making has become more competitive in this environment. Thought: A model for elsewhere on the benefits of more open trade.
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| EU car making is very productive for the most part |
North America: Canada seems to have hit a ceiling with car making, but the US is still growing. Local producers get a fair amount of support from buyers so making cars in the US makes sense. The rewards are there for car production but a hard market to get established in. Thought: High wages can be overcome with high volume and proximity to the market.
When I was young, cars with a premium image sold at much higher prices
because you got a much better vehicle. People bought them for the
quality and prestige that went with the ownership of a superior car.
They sold in much smaller numbers, but the profit margins were much
higher to compensate. They were better built and a lot more solid.
Fast forward to today and the lines have been blurred. Mass market cars are better than ever and premium brands have moved into segments ones the preserve of lesser brands, such as Mercedes did with the A-Class. So are premium brands so premium anymore?
The short answer is no! They sell in numbers that are not too far short of standard makes, so any exclusivity has gone. They sell for twice the price of the lesser brands but offer scarcely more in terms of superiority, so they still make loads of money but giving little extra for it. Build quality is no better, as all cars are pretty well made these days. Often they are less reliable. So why do they have such desirability? Many of the car buying public hasn't seemed to have realised the change that has taken place.
In summary: The pursuit of sales volume to be the biggest by the three German premium brands is putting them into segments they shouldn't be in. The quality is not as special either anymore. To make the point, I was recently reading a car magazine which was reviewing the new model Nissan Qashqai. It said "There's a better ambiance about the Qashqai's cabin than the twice as pricy Merc GLA.." That says it all really.
What to make of it: There seems no reason to buy premium if it is not premium. Why would you? Mass produced brands are delivering today and surely the public will cotton on eventually. Some premium marques such as Jaguar offer something with style and class that is worth paying for. The same magazine recently wrote about the F-Type R Coupe that it had something that is lacking in a lot of it's Germanic competitors, and that's genuine character. All premium cars should have that, making ownership special. As for too many premium cars, what's the premium? All too often only the price.
Fast forward to today and the lines have been blurred. Mass market cars are better than ever and premium brands have moved into segments ones the preserve of lesser brands, such as Mercedes did with the A-Class. So are premium brands so premium anymore?
The short answer is no! They sell in numbers that are not too far short of standard makes, so any exclusivity has gone. They sell for twice the price of the lesser brands but offer scarcely more in terms of superiority, so they still make loads of money but giving little extra for it. Build quality is no better, as all cars are pretty well made these days. Often they are less reliable. So why do they have such desirability? Many of the car buying public hasn't seemed to have realised the change that has taken place.
In summary: The pursuit of sales volume to be the biggest by the three German premium brands is putting them into segments they shouldn't be in. The quality is not as special either anymore. To make the point, I was recently reading a car magazine which was reviewing the new model Nissan Qashqai. It said "There's a better ambiance about the Qashqai's cabin than the twice as pricy Merc GLA.." That says it all really.
What to make of it: There seems no reason to buy premium if it is not premium. Why would you? Mass produced brands are delivering today and surely the public will cotton on eventually. Some premium marques such as Jaguar offer something with style and class that is worth paying for. The same magazine recently wrote about the F-Type R Coupe that it had something that is lacking in a lot of it's Germanic competitors, and that's genuine character. All premium cars should have that, making ownership special. As for too many premium cars, what's the premium? All too often only the price.
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| Forget the GLA and get a Qashqai. Save heaps of money too. |
The Motor Show continues to succeed despite the Internet. We all know
that cars are coming before the show reveals them, with teaser pisc and
Zebra liveried prototypes seen driving about and all put on the 'net for
us. Yet the Motor Show still works. I guess by releasing new cars
gleaming under lights, with attractive models standing by is a
compelling package. Having them all together in one location is helpful
to say the least and it puts some excitement back into the car.
Some cars seen at the show, starting with basic and ascending:
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The GM Karl (Viva in the UK) is a small, cheap and OK styled super mini. It should sell well at its price point.
The last Micra was what the Americans would call homely. The next one to be based on this will be anything but. I expect it to sway a few customers over to Nissan.
The new MINI Clubman looks to be a much better package than its predecessor. Not looking too mini these days though. Still, it is the way cars go with each new model.
Infiniti is working on eye catching style to get noticed. It has ambitions in Europe and this is the sort of car trusted with lifting the marque there.
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The Bentley EXP 10 Speed 6 is a concept years away but will see the light of day as the marque gets into new niches. It was the star of the show for me.
Some cars seen at the show, starting with basic and ascending:
The GM Karl (Viva in the UK) is a small, cheap and OK styled super mini. It should sell well at its price point.
The last Micra was what the Americans would call homely. The next one to be based on this will be anything but. I expect it to sway a few customers over to Nissan.
The new MINI Clubman looks to be a much better package than its predecessor. Not looking too mini these days though. Still, it is the way cars go with each new model.
Infiniti is working on eye catching style to get noticed. It has ambitions in Europe and this is the sort of car trusted with lifting the marque there.
The Bentley EXP 10 Speed 6 is a concept years away but will see the light of day as the marque gets into new niches. It was the star of the show for me.
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| There has got to be a better way |
There are things that are not right with the auto industry. It looks rosy but it isn't. So what are the issues and improvements.
Cost. Cars cost consumers too much. It's not just the outlay, nor fuel, servicing, insurance or registration. The big killer is depreciation. If they cost less to buy, then that would lessen depreciation.
Consumers. They wear the high cost of car ownership so they get what they deserve. I bought a small new car nine years ago and recently wanted to buy another new car. I didn't because the one I have works fine, depreciation makes it of little value and I resent giving up so much hard earned money to pour down the new car sink hole. If more people held off buying, then maybe the industry would have to look at how it operates.
Independence. Car makers do too much alone. They are cooperating more than they used to, but it still far too little. So much cost is wasted by duplicated R&D, costs that could be shared. That would bring the prices down.
Congestion: Car makers cannot be blamed for this but their product polutes and causes massive congestion. That adds stress, health issues and reduces efficiency. Big cities have public transport and I wonder when these metropolises start to crack down on private car ownership. The car industry is and will be getting more bad press.
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| There are so many alternatives to improve transport efficiency that could compliment car ownership |
Summary: The car has offered personal mobility for the masses, something unique in history. Like many of man's inventions, unless controlled it ends up defeating what it was supposed to achieve. Of course, bringing the price down of new cars would add to congestion. That is why regulations need to control ownership in certain situations such as crowded cities, once they become more of a hindrance than a help. The car industry margins are rather small. Less car companies (but not necessarily less brands) would certainly improve efficiency.
Recently FCA (Fiat Chrysler) CEO Sergio Marchionne criticised the auto industry for being too fragmented, making it less efficient than it should be. He said it was risky not to cooperate more as costs increase. The industry is spending a lot on getting CO2 emissions down and looking at alternative fuel options. Add to that the new technologies making cars ever more complex and prices simply cannot come down. Margins in the mainstream sector are paper thin as it is.
He is right and I have commented here before about it. So much cost is wasted by duplicated R&D, costs that could be shared better. It's an expense that someone has to wear, either the car maker or the consumer. However there are moves in the right direction but not enough for Sergio. I think he is impatient with the progress FCA is making and wants to work with others more than they do with his company. This is slowing him down.
Now on to the cost to the consumer. Cars are too expensive. It's not just the outlay, nor fuel, servicing, insurance or registration. The big killer is depreciation. If they cost less to buy, then that would lessen depreciation as reduce costly monthly payments if using finance.
So with ever greater economies of scale why are prices not lower? Beyond what has been mentioned, most cars are simply more than most motorists need. If I bought a new car tomorrow it would have far more features than I want. That applies to a wristwatch, cellphone or computer too. The difference with a car is instead of costing me tens of dollars more, it adds up to hundreds or - more likely - thousands.
Consumers wear the high cost of car ownership so they get what they deserve. I personally resent giving up so much hard earned money to pour down the new car sink hole. If more people held off buying and made their over-engineered and over equipped vehicle last longer, or even gave up car ownership for public transport, then maybe the industry would have to rethink how it operates. I just can't see that happening.
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