Japanese cars were once thought to be rare cars that could never compete with Ford or General Motors. Currently, EVs in China are in a similar situation.
Japanese cars were once thought to be rare cars that could never compete with Ford or General Motors. Currently, EVs in China are in a similar situation.
The New York Times yawned in its 1968 headline, “Toyota Introduces New Corolla, a New Economy Car,” introducing the best-selling car in history to the American market. Four years later, in another article, Honda Motor Co. “was primarily a motorcycle name in the United States,” but began selling “small” four-wheelers as well. The story of how America’s Big Three automakers arrogantly bowed to their Japanese rivals is a familiar one, and should warn automakers who underestimate China’s competitive threat. Designers focused on large, powerful, gas-guzzling cars that would yield better profits on Detroit’s inefficient production lines, but the U.S. auto industry of the 1970s focused on cars that consumed fuel and required minimal maintenance. I couldn’t understand the appeal of an affordable Japanese car that was cheap and packed with standard features. Local buyers were used to finding it only as an expensive add-on.
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The New York Times yawned in its 1968 headline, “Toyota Introduces New Corolla, a New Economy Car,” introducing the best-selling car in history to the American market. Four years later, in another article, Honda Motor Co. “was primarily a motorcycle name in the United States,” but began selling “small” four-wheelers as well. The story of how America’s Big Three automakers arrogantly bowed to their Japanese rivals is a familiar one, and should warn automakers who underestimate China’s competitive threat. Designers focused on large, powerful, gas-guzzling cars that would yield better profits on Detroit’s inefficient production lines, but the U.S. auto industry of the 1970s focused on cars that consumed fuel and required minimal maintenance. I couldn’t understand the appeal of an affordable Japanese car that was cheap and packed with standard features. Local buyers were used to finding it only as an expensive add-on.
By 1981, strong political pressure forced Japan to accept a voluntary cap on the number of automobiles exported to the United States. In response, Asian automakers launched luxury brands that could earn them more export dollars for each vehicle sold, giving birth to Lexus, Infiniti, and Acura. Meanwhile, they built a factory in the United States to sell their popular cars without trade restrictions. Currently, about one in three American autoworkers is employed by Japanese companies. Only pickup trucks are covered by the 25% tariff, making them largely exempt.
Chinese-made EVs are now as rare in the United States as Japanese cars were in the late 1960s, and the 27.5% tariffs imposed under the Trump administration and the tacit understanding that investments in local factories are not welcome. I’m being put off because of this. However, things are changing. Last year, Tesla began shipping models from its Shanghai factory for sale in Canada. In Mexico, gasoline-powered cars, mainly from Chinese automakers, accounted for about one in five cars sold in the first 10 months of last year. The company’s buyers prefer low prices and lots of luxury features, like those used by Japanese automakers in the 70s and 80s.
Tesla CEO Elon Musk told investors at an earnings conference in January that “Chinese car companies are the most competitive car companies in the world,” adding, “If trade barriers are established… If not, China will put most other car companies out of business.” world. “
A protectionist blanket may be lulling Detroit into a false sense of security. We are currently in a situation that is strikingly similar to the 70s. Increasing profit margins on trucks priced over $60,000 prompted manufacturers to promote their trucks and discontinue production of cheaper, more efficient subcompact cars. But disappearing from dealer lots are small cars at half the price that fit the tight budgets of today’s buyers.
There is real room for Chinese brands to enter here, if they can get the regulatory needle through. Recent models such as BYD’s Dolphin and Great Wall Motors’ Ora have gained a reputation as reliable urban runabouts that sell for less than $30,000 in export markets such as Australia.
The key will be finding a way around the 27.5% tariff, which is beyond the resourcefulness of smart exporters. BYD, SAIC Motor Corporation and Chery Automobile, China’s largest EV producers, have recently considered establishing factories in Mexico. There is no point in establishing such an investment if the victory of the US market is not at hand.
As last reported by Bloomberg News, Chinese manufacturers set up in Mexico will be able to reduce U.S. President Joe Biden’s tax on domestically produced clean cars if they can eliminate enough Chinese parts from their supply chains. Tax lawyers believe they will also be able to take some of the deduction. week.
Such a move is likely to provoke a protectionist backlash in the United States, similar to previous Japanese advances. This time it was further intensified by the fact that Asian exporters were not allies but aggressive geopolitical competitors. The paranoid rhetoric that treats the tens of thousands of Chinese EVs exported to the United States each year as a more serious security threat than the hundreds of millions of cell phones headed in the same direction is a taste of what’s to come.
But Detroit automakers can protect themselves from Chinese EV makers only if they compete with and develop products that can compete with them. That’s a lesson they failed to learn when facing their Japanese rivals half a century ago. The only way to win this race would be to start competing with the next wave of Asian imports, rather than trying to disqualify them. ©Bloomberg