THE AUTOEXTREMIST

February 16, 2011

The Transformational Shift.

By Peter M. De Lorenzo

(Posted 2/15, 10:30 a.m.) Detroit. I think it’s fascinating to see just how pervasive the influence of the vast Chinese automotive market is and will be on the cars we’ll be buyng from here on out. As a matter of fact the depth and breadth of the transformation going on at car companies around the world right now to not only anticipate the opportunity in the Chinese market but to exploit it for all it's worth is simply staggering.

Even GM CEO Dan Akerson, speaking at a news conference in Beijing on Tuesday, called China “the crown jewel in the GM universe” and said that "China is central to our global strategy." "We want to understand the preferences that the China market wants. We bring our best designs, best technology to China," “Lt. Dan” went on to say.

To elaborate on that point there is not one GM passenger car undergoing development right now – other than limited-production high-performance cars – that is not first and foremost influenced by the needs, wants and desires of the typical Chinese automotive consumer. Not one. The entry-level, near-luxury and luxury cars from Chevrolet, Buick and Cadillac have been undergoing this transformation for several years now, and the next wave of new models in particular will have the Chinese market’s influence all over them, including the look, feel and detailing of the interiors and the now obligatory must-have for the Chinese buyer: generous rear seat room.

And suffice to say GM isn’t alone.

Other manufacturers around the world are all on the same page. Whenever you hear the words “global vehicle architecture” in conjunction with an automobile company’s future product plans these days it means only one thing: aimed at the Chinese market first and foremost.

Up until recently there was a worry for automobile manufacturers who were all going for the same slice of the luxury pie in the U.S. and European markets – in other words the “mature” automotive markets – and the fact that not all of these manufacturers we’re going to make it, let alone live up to their, shall we say, “optimistic” sales goals.

It became laughable at every auto show media day as the parade of car company executives got up and gave their projections for their brand’s luxury market penetration, except by the end of the day quick calculations revealed that with six or seven manufacturers all promising to increase sales by double digits, the manufacturers’ cumulative slice of the pie would exceed the total market by a bunch, in other words, the automotive sales equivalent of trying to shove 50 lbs. in a 25-lb. bag. It was clear that not every auto manufacturer was going to be that successful, and the expected hand-wringing and disappointment ensued.

Well that concern only appears merely quaint at this juncture, because the meteoric rise of the Chinese market is destroying tried-and-true auto industry adages left and right. And you only have to look as far as Porsche to understand the impact that China has on the future ambitions of these car companies.

According to Automotive News Porsche is said to be planning on increasing its number of employees by 1,000 (it employs 13,000+ now) and spend more than $1.3 billion on engineering, product planning and factory upgrades over the next five years. Why? There’s only one reason and that’s to better position itself to take advantage of the Chinese market.

That means new models like the Audi Q5-sized Cajun SUV, which will be targeted at the slightly smaller premium crossover segment, currently one of the fastest growing segments in China. And a stretched, longer-wheelbase version of the Panamera (ugh) aimed squarely at Chinese buyers’ insatiable desire for rear seat room. And there are more new Porsche models being planned too.

Porsche has gone on record saying that it planned to double its yearly sales to 200,000 units a year by 2018. That would have been laughable just a few years ago but now, with China’s almost limitless growth on every automaker’s agenda, it’s certainly a distinct possibility.

The point to all of this?

The cars and crossovers we buy in this country from now on will be designed for China and then tailored for this market. And not the other way around. The U.S. in effect has gone from being a “mature” market to becoming a second-tier automotive market for the first time since this industry was invented. And it has happened basically overnight too.

It’s not just a new business reality; it marks a fundamental, transformational shift for not only the American car-buying consumer public, but for the U.S. automobile industry itself.

But this whole “transformational shift” thing vis-à-vis China goes far beyond the U.S. automobile industry, as we should all know well by now. Every major enterprise in America is acknowledging and accommodating this new reality as well, from our industries to our educational resources and everything and anything in between.

And how this country – and “America Inc.” – responds will determine not only the fate of many of this country’s founding industries, but ultimately the competitive positioning and long-term fate of this nation as well.

And that’s the High-Octane Truth for this week.

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