Your Next Car Made in China?
May 2nd, 2008 | By Charles Delvalle | Category: International InvestingDid anyone honestly ever think that Japan would conquer the U.S. when it came to making cars? Would you believe it if I told you that cars from China WILL one day present a threat to the Japanese automakers?
To make my point, I’d like to tell you a story.
One of my first cars was a 1996 Hyundai Sonata.
The car was decent, but for having a four-cylinder 148HP engine, my fuel mileage was god- awful. I got 20 miles to the gallon. It didn’t matter if I was on the highway, a city road, or revving my engine past 6,000 RPM while going 110 miles an hour; I always got 20 miles per gallon.
God bless its soul, it tried to get me from point A to point B in good fashion.
But then I had to get the rotors machined. And then the engine started knocking. I got that fixed and of course, the A/C went out. Shortly after that, the transmission started slipping. Let’s not forget about getting the headliner redone, the power windows and door locks replaced, and, well the list goes on.
In the end, the car gave me two and a half trouble free years and then one year of pure hell. So why the heck did I end up buying another Sonata?
Hyundai met my demands as a consumer.
You see, I demanded standard safety features like stability control, a low price, and a great warranty. I was too afraid of paying $356 every month in car payments and then, years down the line, having to spend another $4,000 just to replace the engine.
Hyundai was the only manufacturer offering a 10 year/ 100,000 mile replacement plan. Plus, they were making huge strides in safety and reliability.
So I bought a newly redesigned 2006 Sonata, made at a new factory in Alabama, and with a completely new engine (made in a partnership with Nissan and Chrysler).
And I couldn’t be happier with my purchase.
I have a six cylinder that gives me 29 miles to the gallon on the highway. You barely hear any road noise from the inside. The interior materials are soft to the touch. The seats are more comfortable. And the 235 horses and 226 pounds of torque coming from the engine are good enough to get me to 60 miles an hour in just under 6.5 seconds.
What problems have I had with the car? Not many. In fact, I frequent a forum of Sonata owners and they have very few problems as well. There’s a reason why this car was found to be one of the most dependable.
Now days, Hyundai is announcing record profits and sales across the globe. In fact, they made two completely new cars that are good enough to compete with Toyota, Honda, and GM.
They’re talking turbos, superchargers, double-clutch transmissions, and the list goes on. They were so far from this point just four years ago!
What Hyundai shows is that any manufacturer that can key into what consumer demand and continually make improvements is poised to make a killing.
This brings me to another string of car manufacturers. The Chinese group.
Now, let me get this out in the open.
I would never drive a Chinese car… at least not right now. After numerous crash tests, some of these cars could have caused fatalities at only 20 miles per hour. The engines, interior materials, and designs have usually been enough to cause Henry Ford to rollover in his grave.
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INTERNAL ENDORSEMENT
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Calling some of these companies ‘copycats’ might be too much of a compliment.
So will Chinese cars ever become big? You bet they will. It will just take time.
You see, these are new companies. They don’t have that much experience perfecting their manufacturing process. In fact, some still use forklifts and practically build cars by hand.
Most of these companies have just started R&D departments. Over time, they’ll learn little tricks to enhance their designs and expertise. I have no doubt about that.
Already engines are being sourced from Toyota. Nissan is partnering up with a few. And even Chrysler is offering to show them some tricks.
The inevitability is that these Chinese car manufacturers will do well as long as they continue to improve their cars and meet demand. But I don’t expect every single one to make it out alive.
The companies that fail to come up with inspirational and original designs will be the first to get hurt. Then the companies that fail to bring quality up to where it needs to be will go next.
Just think of Yugo – that cheap car that everyone made jokes about. They didn’t get anywhere because of quality. If China can’t bump up quality, their cars will be a joke too.
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Charles Delvalle is a self-taught market-timing professional and value analyst who uses a combination of technical indicators and fundamental research to achieve consistent gains on stocks, commodities and options.
Charles is also a staunch contrarian and takes pride in finding undervalued sectors and discovering great companies on the cheap. He questions government reports and the status quo. In addition to swing trading options, Charles is also Co-Editor of the monthly advisory service - INCOME.
