Why China’s manufacturing prowess is an existential threat to legacy automakers

Last week, Automotive News editors and reporters toured the sprawling suburban Detroit headquarters of Caresoft Global, which disassembles vehicles from across the globe, analyzes how they are engineered and manufactured, and advises automakers and suppliers on how to reduce production costs.

As we were guided past displays of thousands upon thousands of carefully arranged parts and components — from vehicle bodies to intact dashboards to teeny-tiny screws — the message from Caresoft executives was loud and clear: The Chinese auto industry is fast and hungry, and the fast devour the slow.

“I have no idea what will happen five years from now,” said Caresoft President Terry Woychowski, a former GM manufacturing executive who spoke about the existential threat posed by Chinese automakers to their legacy counterparts. “But I do know what I see, and I can extrapolate. Things are going to change.”

Ford Motor Co. CEO Jim Farley — who began a long-term test of a Xiaomi SU7 last year — acknowledged the challenge while speaking at a financial conference Feb. 11, saying: “What I’m always amazed at for the last three to four years with the Chinese is their speed. Everyone talks about how good they are, how cheap they are, but what they should be talking about is how fast they are.”

China’s advantage isn’t just its cost-saving institutionalized commonization of mundane parts. (Didn’t the late Sergio Marchionne warn us a decade ago that the industry needed to do exactly that in 2015’s “Confessions of a Capital Junkie”?) China also has a work force with an insatiable appetite for knowledge and achievement. Caresoft CEO Mathew Vachaparampil, who visits China about 10 times a year, cited the country’s “9-9-6″ work culture: In at 9 a.m. and out at 9 p.m., 6 days a week.

Does the legacy industry stand a chance? Read reporter Richard Truett’s observations from the Cafesoft visit here.

-- Omari Gardner, director of content and commentary

“Let’s be real honest: Long-term, 25 percent tariffs across the Mexican and Canadian border would blow a hole in the U.S. industry that we have never seen”

FORD MOTOR CO. CEO JIM FARLEY ON PRESIDENT TRUMP’S LOOMING THREAT OF TARIFFS ON CANADA AND MEXICO

 From: "Trump creating ‘cost and chaos,’ Ford CEO Jim Farley says"

Automotive News editors' picks:

Chrysler bets on a comeback for cars: As Stellantis continues its search for a CEO to replace Carlos Tavares, it’s moving ahead with a significant shift in its EV strategy. The automaker is canceling or pulling back on all-electric plans for Chrysler and Alfa Romeo and focusing on offering consumers more freedom of choice with gasoline-powered models, hybrids and plug-in hybrids as well as EVs. Even the good old-fashioned car, eclipsed by the demand for crossovers and SUVs, is getting another look, although the vehicle Chrysler has in the works is anything but old-fashioned. Taking a page from the sleek, futuristic all-electric Halcyon concept car announced a year ago, the company has a car on the drawing board that offers “multi-energy, incredible design and performance, but also interior flexibility and versatility.” That according to Alfa Romeo North America head Christine Feuell, who added, “I truly believe that we’re going to see a resurgence of the car segment as customers are looking for not only more affordable solutions, but as we’re getting more creative and innovative with how we define a car.” Automotive News takes a look at the changes in store for Stellantis.

How costly could Trump administration policy changes be in the states that helped elect him? The Inflation Reduction Act was a driving force in the development of the domestic EV industry and President Donald Trump’s moves to pause manufacturing incentives under the act could jeopardize more than $100 billion in EV investments and more than 80,000 jobs in states he won in November. Some Republican members of Congress are pushing back. Republican Rep. Buddy Carter of Georgia said the act spurs economic growth that will make the U.S. competitive and secure. “We must ensure that our policies continue to do that, and that we do not jeopardize the economic future of those communities that have invested in these projects,” he said during a recent hearing by the U.S. House Ways and Means committee. Even if the manufacturing incentives resume, the president’s desire to end the consumer tax credits of up to $7,500 per EV could have a ripple effect through the industry, leaving automakers and suppliers with excess capacity and stranded capital. Automotive News reports on the complex and interconnected economic implications involved in any redirection of federal policies on EV development.

Mercedes-Benz USA buzz saws budgets in belt-tightening, pink-slips sales managers: Mercedes-Benz has ordered major markets, including the U.S. and China, to slash costs by about 25 percent, three people familiar with the matter told Automotive News. Top U.S. executives, including CEO Dimitris Psillakis and human resources chief Lars Minns, delivered that message to employees during a recent town hall meeting at Mercedes-Benz USA headquarters near Atlanta.

Massachusetts voter-approved vehicle data access measure survives court challenge: A federal judge has rejected a challenge by a group representing automakers to a Massachusetts voter-approved measure that expanded access to vehicle data and allowed independent shops to repair increasingly sophisticated automotive technology. The ruling by U.S. District Judge Denise Casper in Boston marked a defeat for the Alliance for Automotive Innovation, a trade association representing General Motors, Volkswagen, Stellantis and other automakers that challenged the law.

Analysis: By focusing on technology, automakers may be missing the point: Carmakers have twisted themselves into knots in their efforts to transform their vehicles into tech-savvy mobile devices, burying controls for features such as heated seats and windshield wipers deep in touchscreen menus. They have collectively forgotten to provide meaningful experiences for customers, SBD Automotive’s Jeffrey Hannah said. The past 10 years have amounted to “an arms race for building the biggest screen,” he said. “What we think is missing is the humanity that brings mobility together.”

Events

• March 3: February U.S. sales reported

Earnings

• Feb. 18: TrueCar Q4 earnings reported
• Feb. 19: Carvana, Openlane Q4 earnings reported
• Feb. 20: Rivian Q4 earnings reported
• Feb. 25: Lucid Q4 earnings reported
• Feb. 26: Stellantis Q4 earnings reported

Feb. 16 Shift podcast: Raquel Urtasun explains how generative AI underpins Waabi’s self-driving tech (Episode 288)

The Waabi co-founder and CEO of the autonomous-trucking startup discusses a new partnership with Volvo Autonomous Solutions. She also details the generative AI advances at the heart of the company’s end-to-end AI stack and approach to developing “AV 2.0.” 

LISTEN TO THE PODCAST>

Feb. 15 Weekend Drive: A look at China-made cars reveals trouble for legacy automakers

The Southeast Michigan company Caresoft is using new technology to look at how Chinese cars are made. Automotive News Engineering Reporter Richard Truett talks about what he saw from Caresoft this week and why he “left there kind of worried about our industry.” 

LISTEN TO THE PODCAST>

Feb. 13 Daily Drive: Honda, Nissan officially break it off; Cox Automotive’s Grace Huang

Honda and Nissan have officially ended plans to combine in a megamerger. Meanwhile, Nissan will close three factories and cut U.S. shifts. Plus, Cox Automotive President of Inventory Solutions Grace Huang talks about efforts to support dealers, carriers and shippers.

LISTEN TO THE PODCAST>

Feb 16, 1936: Roy Chapin Sr., 55, co-founder of Hudson Motor Car Co. and secretary of commerce at the end of Herbert Hoover’s presidency, died.
Chapin was instrumental in the expansion of the American auto industry. He began working for Ransom Olds at Olds Motor Works in 1901. As a test driver for Olds, he participated in a publicity drive of a Curved Dash Oldsmobile from Detroit to the New York Auto Show. The trip took more than a week because of rutted and muddy roads. Despite the conditions, Chapin completed the journey, generating publicity for the Curved Dash and a flood of orders. The experience galvanized Chapin to later campaign for better roads.
Chapin left Olds Motor Works in 1906 and founded Thomas-Detroit Co. and then Hudson Motor Car Co. in 1909. The company was named after Detroit merchant Joseph Hudson, who provided most of the capital to fund the business. Hudson’s sales grew quickly, but Chapin was convinced that more sales were possible by adding a low-priced car. He launched a second car line named Essex in 1919, with the vision of offering an enclosed car. The Essex Coach was launched in 1922 and became the first affordable mass-produced enclosed automobile. The enclosed Essex cost only $300 more than an open touring car and became so popular that it caused a major shift in consumer demand.
Chapin served as president of Hudson through 1923, and chairman of the board thereafter. Hudson was the predecessor of American Motors.