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GloboCars: THE NEXT CENTURY : The Last Frontier for Sales : Auto makers the world over eye China lustfully. Yet inefficiency and trade barriers have helped keep its potential largely unrealized.

March 01, 1994|RONE TEMPEST | TIMES STAFF WRITER

BEIJING — When General Motors executives in Detroit committed $30 million to invest in the Jinbei truck factory in Shenyang, capital of China's northeastern Liaoning province, they expected to make a profit in 1993, the first full year of operation.

Things went fine until last summer, when China's economy czar, Vice Premier Zhu Rongji, alarmed by the country's overheated condition, ordered a clampdown on credit for state enterprises. The effect on the Chinese automobile industry, which depends almost entirely on state businesses for its orders, was the equivalent of changing the combination on the company safe.

Instead of its selling the 25,000 Chinese-designed, GM-improved "Gold Cup" pickup trucks it anticipated, GM-Jinbei's orders fell to 15,000. In addition, said GM regional manager Ron Gilchrist, the company managed to sell only 800 of the S-10 model pickups it had brought over in assembly kits to use to train the Shenyang work force and test the market. The two-door S-10, priced at a hefty $20,000 in a country where the annual per capita income is only $367, turned out to be the wrong product for China. Truck buyers here prefer more passenger space to accommodate large work crews.

As a result, GM's first major plunge into the Chinese market ended up in trouble and deeply in the red. If business does not improve this year, said Gilchrist, the company may be forced to cut some of Jinbei's 4,000 employees. Layoffs are risky business in China, where workers are accustomed to guaranteed employment under the "iron rice bowl" social welfare net built up under 40 years of Communism.

In the comfortable, distant boardrooms of the world's great auto makers--in Detroit, Tokyo and Munich, Germany--the huge China market looms tantalizingly on the horizon like a shiny red apple, ready to be plucked.

China is the world's last great automotive frontier. Nowhere else are there so many people and so few cars. Even India, with nowhere near China's economic might, has three times as many private cars.

Inevitably, when foreign auto moguls discuss China, the talk turns to the country's fantastic numbers: 1.2 billion people, 20% of the world's population; a rapidly growing middle class; fortunes being made on every street corner from steamy Hainan Island in the south to the frigid reaches of Manchuria in the north.

If only one Chinese person out of 120 bought an automobile, that would be 10 million cars--a number rivaling the markets of North America and Western Europe.

Chrysler Corp. President Robert Lutz, whose own company has had a rocky experience with its Cherokee Jeep factory in Beijing, recently rated China the No. 1 future growth market in the world, followed by the former East Bloc countries.

Yet here on the ground, in the sobering reality of a China that has not quite weaned itself from its state-dominated economy, things are not nearly so bright and promising--a least in the short term.

At last count, there were more than 125 different motor vehicle manufacturers in China, more than in any other country.

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They range in size from the big Volkswagen Santana plant in Shanghai that produces almost half of the country's passenger cars to tiny assembly lines on remote military bases where vehicles are assembled from components of other car makes, Chinese and foreign.

"Some of these plants are like cottage industries with just a roof to keep out the rain," said Toshiaki Yasuda, general manager of Nissan's modest China operations. Of all the world's auto makers, the Japanese have been the most cautious about diving into the China market.

"The smaller companies simply buy the components and put on their own logo," Yasuda continued. "Sometimes the only original thing on the vehicle is the logo. I've seen some Chinese micro-buses on the streets that look very similar to our own products."

One recent afternoon, the sales lot of the Beijing Agricultural Exhibition Hall featured a sampling of China's output, dozens of barely distinguishable cars and trucks bearing colorful Chinese names like Bright Sun, East Wind, Liberation, Yellow River, Jade of the Sea, Three Peaks and Golden Dragon.

The Chinese industry is also the world's least efficient. Nowhere else does it take more people and more tea breaks to produce a single car. Japan, the world's most productive auto maker, averages 17 vehicles per employee per year; U.S. labor productivity is 13 vehicles per employee per year.

A recent study by Lo Dic, a University of Leeds economist, reported that China produces only about 0.24 vehicle per employee per year. Put another way, the average annual output of four auto workers in Japan is 68 cars; in China, the average annual output of four workers is one car.

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