China and the North American Auto Industry Preliminary Thoughts for the Woodrow Wilson Center Hudson Institute

Thinking About Cars and the Continent  What makes up the North American Auto Industry?  What has been the experience of non-North American firms entering this market so far?  What makes up the Chinese Auto Industry?  What are the problems and opportunities for China in the North American vehicle market?  What does this mean for the United States and Canada?

Hudson Institute The North American Auto Industry  The Detroit Assemblers  US, Canadian investment in GM, Chrysler  New Entrant Assemblers  Vertical Integration to Horizontal Supply Chains

Hudson Institute New Entrant Assemblers

Hudson Institute New Entrant Assemblers: Group 1

Hudson Institute New Entrant Assemblers: Group 2

Hudson Institute New Entrant Assemblers: Group 3

Hudson Institute Suppliers  Tier 1, 2, 3  Sub-assemblies  Components

Hudson Institute The Chinese Auto Industry: Part 1

Hudson Institute The Chinese Auto Industry: Part 2

Hudson Institute The Road to North America  Import (components, vehicles)  Joint Venture  Acquisition  Assembly

Hudson Institute The China Challenges  Trade Policy  Labor Unions  Supply Chain  Regulatory Compliance  Quality  Intellectual property  Investment Incentives  Retail network  Canada & Mexico

Hudson Institute  WTO membership reduces potential trade barriers  NAFTA Rule of Origin  North American border-crossing?  Target for retaliation (cf. auto parts) Trade Policy

Hudson Institute  China labor record problematic  Advantage to capital, not labor in North America – how competitive is China?  Bad History of Unionization of New Entrants  Imports a large target for US labor Labor Union

Hudson Institute  North American suppliers provide local content, access to technology  Many connected to China already, will want reciprocity  Defend local content rules  Promiscuous?  Higher cost, higher tech – labor cost advantage? Supply Chain

Hudson Institute  Need to know regulators, process  Can acquire compliant technology  Regulation as a non-tariff barrier  Public R&D Tech Transfer – USCAR and ITAR Regulatory Compliance

Hudson Institute  Hyundai Problem  Imports face quality challenge  Recalls costly, including to reputation  Collective Guilt Quality

Hudson Institute  Chery v. General Motors (on behalf of Daewoo)  Siemens high-speed rail  Litigation Intellectual Property

Hudson Institute  Can the governments afford them? Backlash potential  The Volkswagen Problem  Workforce training  Infrastructure (esp. in green-field, non-union areas) Investment Incentives

Hudson Institute  Dealership consolidation underway  State regulated, internet not (yet) an option  After sale service, warranty  Aftermarket parts  US & Canadian Consumers = demanding Retail Network

Hudson Institute  Treat as separate markets?  Local production justified?  With local content, a NAFTA end-run?  Border risk  Canada friendlier than Mexico, Mexico more familiar than Canada Canada and Mexico

Hudson Institute China and the North American Auto Industry  Import (components, vehicles)  Joint Venture  Acquisition  Assembly Or…

Hudson Institute China and the North American Auto Industry  Comparative Advantages in capital/technology versus labor, cost  Divide and conquer world markets?  Collaborate and conquer world markets?  Avoid mutual conflict

Hudson Institute Canada and the Auto Industry  Incentives for Japanese in Ontario  Volvo duty drawback in Nova Scotia  Hyundai in Bromont  Auto Pact manipulation not possible; Zero Tariff for Japan?  Green Industrial Policy?  GM-Chrysler precedent – one industry?

Hudson Institute The Panda Game  The Chinese market  China likely to play one off the other  Canada First  Canada’s future role in the North American auto industry?  US reaction?

Hudson Institute China and the North American Auto Industry Preliminary Thoughts for the Woodrow Wilson Center