Chinese Automotive Industry

Many US companies are earning profit in China. US corporate profits in China passed $2 billion in the first 2 quarters of the year. In 1999, only 57% of US firms were profitable in China. In 1999, only 0.1% of Chinese owned automobiles. In 2004, it was 2.2%. GM is leading in the auto market, as its sales climbed 36.7% from January to September to 645,000 vehicles. The top 4 car companies in China based on units sold are GM, followed by Volkswagen, Hyundai, and Toyota. Prior to 2005, Volkswagen was the leader in China. GM was able to reach the number one position by forming joint ventures with domestic firms that make minivehicles. Despite getting a late start in the Chinese market, Toyota, now #4 in units sold, is expected to overtake GM between 2008 and 2010.

Enron's Skilling gets 24 Years

CNN reported yesterday that Former Enron CEO Jeff Skilling is going to jail:

Jeffrey Skilling was sentenced to 24 years in prison Monday for his role in the fraud at Enron that brought down the nation's seventh-largest company and came to stand as a symbol for an era of corporate fraud in America...More than 4,000 Enron employees lost their jobs - and many their life savings - when the company declared bankruptcy in December 2001. Investors lost billions.

This is good for markets, as investors will have more confidence in the ability to prosecute wreckless managers. I wonder how this will effect the midterm election? Since Bush and the GOP previously got hammered on their ties to Enron, will voters interpret this as Bush's buddies are going to jail? (Actually, Bush was friends with Kenneth Lay, not Skilling.) On the other hand, will people give the Bush administration credit for cracking down on these corporate crooks and restoring confidence in investors? A third possibility - voters are clueless and won't consider this at all!

Chinese Caution

Many people ooh and aah over the potential market power of China. 1.3 billion consumers. A cheap labor force in the millions. GDP growing steadily at about 10%. What's not to like? You hear reports about how America's day has come and gone and how China will soon overtake the USA.

Hold your horses. China has a good chance to become a major world power, that is true. But it won't happen as fast as many think. Poverty is widespread, most of its workforce is uneducated and unskilled, the legal system is showing promise but corruption is still widespread, and capital markets are young and untested.

Well, just this week we found out Malcolm Bricklin's Visionary Vehicles will be forced to delay the arrival of its Chinese produced Chery cars in the USA. He had been claiming a 2007 arrival date, but that has now been postponed to late '08 or early '09. Starting an automotive company is difficult, as it is a highly capital intensive industry. I seriously doubt the long term viability of Bricklin's cars. I do feel Chinese produced cars will be shipped to the US in the near future due to the cheap labor there, but I think established car companies such as GM, Toyota, and Volkswagen will most likely be the ones to be successful at this. The global automotive industry is already in bad shape. The market is mature, oil prices are rising, the industry has an excess of capacity, profits are dwindling. China will soon be an economic force to deal with, but its days as a fully developed nation are still far off in the future.