Wolf Richter www.testosteronepit.com
Practically every car sold in the US contains Chinese-made components. But suddenly, in the middle of a heated presidential campaign, the Obama administration decided to do something about it.
“We’re certainly looking at that,” Tim Reif, general counsel in the US Trade Representative’s office, told reporters, though he insisted that the election had nothing to do with it. Instead, it was all about “careful examination of the facts.” Earlier in 2012, as Republican candidates were bashing not only each other but also President Obama, the United Steelworkers union smelled an opportunity and began pushing the White House to take a stance against “a flood of auto parts from China.” A Department of Commerce investigation, resulting in anti-dumping or countervailing duties, or a WTO case against Chinese subsidies would do.
Political picante sauce: 188 lawmakers, many from swing states like Ohio where the auto industry is important, sent a letter to the White House, lambasting China for its “vast array of policies” that heaped unfair advantages on Chinese component manufacturers. And now, five months before the election, the White House is showing its dentures.
The force behind the epic migration of component manufacturing from the US to China, however, is the US auto industry itself—and Wall Street engineering.
Delphi, the former component division of GM, is Exhibit A. GM spun it off in 1999. In 2001, Delphi axed 11,500 workers. In 2004, it got tarred and feathered over its accounting practices. In 2005, six years after its IPO, it went bankrupt and closed 24 plants. In 2006, it closed another 21 plants. Meanwhile, GM was sourcing components elsewhere, particularly in China. In 2009, Delphi Automotive sold its chassis division to BeijingWest Industries, a joint venture of three government-owned companies—Shougang Corp, Bao’an Investment Development Co., and Beijing Fangshan State-Owned Asset Management Co. BeijingWest now develops and manufactures brake and chassis components for US and European automakers.
Visteon, Ford’s former component division, is Exhibit B. Ford spun it off in 2000. In 2009, nine years after its IPO, Visteon went bankrupt and shuttered numerous plants. Its center of gravity shifted to its Asia Pacific Corporate Office and Innovation Center in Shanghai. It consolidated its interior and electronics divisions into its Yanfeng joint ventures with Huayu Automotive Systems, a subsidiary of China’s largest automaker, Shanghai Automotive Industry Corp. (SAIC), which is owned by the Chinese government. And the building of its North American Corporate Office in Van Buren Township, Michigan, was sold earlier this year.
Germany, whose highly successful auto industry plays a disproportionate role in its export-driven economy, has seen the same migration. The latest was Kiekert AG, the largest manufacturer of automotive door-lock systems in the world. Among its customers: GM, Ford, VW, and BMW. It has plants in Germany, the Czech Republic, Great Britain, the US, Mexico, and, since 2008, China.
As with Delphi and Visteon, financial engineering played a role. Permira, a European PE firm, acquired it in 2000 and stuffed it to the gills with debt. In 2006, the game was over. Kiekert was handed to its creditors, Bluebay Asset Management, Silver Point Capital, and Morgan Stanley. In March this year, they sold it to Lingyun Group, a subsidiary of China North Industries Corporation (Norinco), a government-owned conglomerate that manufactures motorcycles, cars, trucks, machinery, weaponry, missiles, ammo.... The Bush administration had slapped it with sanctions in 2003 for selling missile-related products to Iran.
In the US, manufacturer after manufacturer followed the routine; they invested billions in China and sent millions of jobs across the Pacific. Sure, the Chinese eagerly played along and encouraged it—not only to expand their manufacturing base but also to obtain proprietary technologies that would, if the plan works out, make it a world leader in the auto industry.
So, it’s no surprise that more and more components are manufactured in China. Outsourcing and offshoring—for a myriad of reasons—have been the primary philosophy of American manufacturing for years, and it’s hypocritical for the White House to go after the Chinese five month before the election, just to gain a few union votes in swing states.
2010 was a magical year in China: 18 million new vehicles were sold. Sales had skyrocketed 33% that year and 54% in 2009. Mind-boggling. It catapulted China to the number one new-vehicle market, far ahead of the US which had never sold that many units in a year. But now, the China auto bubble is emitting a sharp hiss. Read.... A Mixed Bag Turns Very Ugly.
And here is Marin Katusa’s superb article.... The New Cold War: with China this time, and over oil.