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The first Japanese cars on the U.S. market were tiny, ugly and poorly built, and their only redeeming quality was high gas mileage. During the oil crisis of the early 1970s, that feature resulted in an explosion of Japanese car sales that pushed these companies into a position of prominence in the U.S. market.
Thanks to improving cars and competitive pricing, they have never relinquished that position. A few years ago, Korean cars were largely the butt of car jokes — one word synonyms for cheap, ugly and unreliable cars.
The only customers for these rolling disasters were those who couldn’t afford anything better. The Korean automakers competed almost solely on price, offering feature-laden cars for thousands less than their contemporaries.
Since money is the bottom line for many car purchasers, the companies found many customers. Most of them never bought Hyundais or Kias again, but there were enough first-time buyers to keep the companies afloat.
In the late 1990s, the companies revamped manufacturing procedures and vehicle reliability improved tremendously. Public image improved considerably with the introduction of industry-leading warranties.
This past has largely faded away. Prices for these cars, however, while still comparatively low, have crept up far beyond their original attractive points.
This has created an enticing opening for low-priced volume manufacturers to make inroads into the U.S. market. Currently, no such manufacturer sells vehicles in the U.S.
That is about to change, as the Chinese are coming.
The Chinese automobile market is booming. With the increased wealth brought about by a skyrocketing economy, more people in China can afford to buy cars.
The successful buy only European and U.S. luxury vehicles. This has resulted in BMW selling more of its flagship Seven-series sedans in China than any other country except the U.S. Midpriced Japanese and U.S. cars are also popular, with lower-priced indigenous cars catering to the largest part of the market.
China’s massive industrial capacity and its already-established role as parts suppliers to most of the largest auto manufacturers around the world have made its entrance into the global auto market successful from a technical standpoint.
This owes largely to engineering and manufacturing partnerships with several foreign companies, including Honda and General Motors. These partnerships give Chinese makers valuable global-level automotive engineering experience, and foreign makers benefit from an increased presence in the very lucrative Chinese market and from extremely cheap Chinese labor costs.
Cheaper labor means a Chinese-made or manufactured car can be sold at a cheaper price and still turn a profit. This model works well, as Chinese cars are successfully sold all over Asia and in several African countries as well. Several Chinese manufacturers are also on the verge of selling in Europe.
The most profitable target remains the U.S. market, which will continue to be the largest market by volume for at least the next 15 years. High sales figures in the U.S. market has a cachet that is unmatched by any other market in the world. For these reasons, Chinese automakers want to enter the U.S. market, and they will do so in the next two to three years.
To be successful in the U.S. market, the Chinese will most likely rely on the model that has worked for them in other countries: More car for less money. Prices for new cars are creeping steadily upwards with each model year, as cars get bigger, more powerful and more sophisticated.
While this has led to arguably better cars, it has also led to new car prices at a record high — beyond the reach of many lower income consumers. Korean makers, formerly the value champions, are sacrificing price for quality.
This is why Chinese cars can do well in America. They will simply prove too good of a deal to pass up. Granted, the crash-test results and long-term reliability of these cars are a little dubious at the moment.
That likely won’t matter to the target audience of the Chinese makers — those who want a new car for the least amount of money possible.
If given the choice, most of those people will take a new car — however unknown or new its manufacturer — if the cost of ownership is low enough.
Doubters of this would do well to remember that this has actually happened in the U.S. market twice already with Japanese and Korean cars.
The difference this time is industrial might. China is capable of manufacturing far more cars today than 1960s Japan and 1990s Korea could. Therefore, if Chinese makers can get a toehold in the U.S. market, economies of scale will take over.
This will lead to one of two scenarios: Other car manufacturers will try to cut costs by outsourcing more manufacturing to countries with cheap labor — like China. This will lead to lower prices, which is good for consumers.
The more frightening and unlikely (but still possible) scenario is that the low-priced competition will drive other manufacturers from business, at least in the mainstream car market.
If that ever happens, our cars will carry a “Made in China” label, just like most everything else we use.
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