President Donald Trump’s escalating trade war with China is exposing an inconvenient truth for Detroit’s automakers. Their bet on the world’s largest market may need a rethink.
That sound you hear is a collective “no” coming from Detroit, Dearborn, and the good folks at Fiat Chrysler in Auburn Hills. They can’t turn their back on the global industry’s biggest engine of growth, the driver of trends in electrification and mobility.
But if Detroit has learned anything from its meltdown a decade ago and the slow climb back to respectability, it’s that smart business people don’t throw good money after bad, or keep trying to compete where they can’t win.
Make no mistake, China isn’t yet that place for Detroit’s three automakers and Tesla, their rival in Silicon Valley. But the trade war, China’s claim of superpower status and a slowdown in the blistering pace of auto sales are exposing more Detroit weakness.
Behind the transpacific presidential belly-bumping over tariffs, negotiators are arguing about more insidious realities: China unapologetically co-opts western technology to accelerate its capability, to collect data, and to monitor business and political rivals. It’s perfectly willing to skew rules to benefit hometown players, assuming correctly that foreign business will surrender in exchange for access to revenue, profit and comparatively cheap labor.
And vastly improved domestic Chinese automakers are claiming ever larger chunks of their home market, squeezing from the bottom mass-market brands like Ford and GM’s Chevrolet, Peugeot, and Hyundai.
China’s top private automaker, Geely, now sells twice as many vehicles as Ford and FCA combined. Just three years ago, it sold half as much as Ford and FCA together. And Great Wall, the Jeep of China, outsells FCA’s Jeep 10-to-1 in the growing SUV segment.
ZoZo Go, an auto consultant based in Hong Kong, says, “The reality is that the Detroit Three are already in trouble – even before direct fallout from trade tensions.”
And some smart money folks on Wall Street are starting to wonder whether Detroit’s automakers should rethink the size and wisdom of their collective bet on China because they “may be operating on borrowed time,” as Morgan Stanley said.
Look, if trade talks keep turning sideways, it might not be long before Chinese leaders encourage a boycott of American auto brands. That would make a challenging situation much worse than what Detroit faces now.
Cars and trucks are becoming one of the most sophisticated internet-of-things networks with all that implies for safeguarding data privacy, trade secrets and security from foreign monitoring. Chinese regulators are expected to speed the death of internal combustion engines, raising investment thresholds for those competing there.
And China’s central planners almost certainly will anoint a select few domestic automakers “national champions” and charge them with leading the electrification of the country’s vast car park.
The goals: to improve their fouled environment, to achieve dominance in the next generation of auto-mobility, to achieve the national security imperative of reducing China’s reliance on imported oil.
That’s quite a minefield for Detroit to negotiate.
Daniel Howes is a columnist at The Detroit News. Views expressed in his essays are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.