The automotive industry is experiencing major layoffs and plant closures around the world, and automaker executives are going on record and taking identical positions, to blame China and Chinese automakers. Few of those executives have bothered to reference the fallout from COVID-19 or the global recession, and none have mentioned how automating roles will help grow their bottom-line and increase shareholder value. Whether the intention behind such comments is to distance their companies’ shortfalls from the decision-making taking place at the C-suite level or not, decades of underprioritizing R&D seems to have finally caught up with legacy automakers.
Both German and Japanese automakers, like Volkswagen and Nissan, have long benefited from protectionist policies and subsidies provided by their respective governments. Those advantages are largely responsible for German and Japanese automakers being able to match American automakers, across North and South America. But American automakers across North America have also been the benefactors of major bailouts in the late 2000s ($80 billion in the US and $13.7 billion in Canada), with the detailed terms and conditions regarding not being made public.
Seeing how everything in today’s information landscape is about manufactured narratives that are designed to “other”, not factual breakdowns, a deeper look into the automotive industry becomes important. Because German, Japanese and American automakers had an unprecedented head start on Chinese automakers, that they should never have had to worry about getting supplanted.
A Lack of Aggressive Investments
Hearing legacy automakers blame Chinese automakers for the major layoffs and plant closures has been a bold deflection away from the decades of bad thinking that has been exhibited by all automaker executives. Throughout the past 20 years, there have been consecutive years where the only changes that legacy automakers have made to some of their best-selling car lines were minor changes to the exterior and interior of those vehicles. Instead of blaming China and Chinese automakers, the blame should fall on an obsolete way of thinking that has dominated the automaking industry, the Minor Model Change (MMC).
The MMC approach is an approach to R&D that advocates for minor facelifts to “renew” a vehicle line instead of major improvements. Some examples of MMC thinking includes updating rim designs, headlight and taillight designs, bumper designs, steering wheel designs, and interior fabric colors. Although “redesigned rims” may sound cool, the main reason for the rim design is to make it so that “used” alternatives from previous years are not compatible and owners have to buy the new-styled rims. So, while legacy automakers were focusing on doing the bare minimum, Chinese automakers were working to develop superior EV technology and battery production.
Most legacy automakers deliberately overlooked creating distinct car lines for many of the world’s developing economies because it would have required them to make cheaper vehicles, while Chinese automakers saw value in those same markets. Now that Chinese automakers have managed to build-up a sizable advantage over legacy automakers, some social media accounts with major followings were posting how Chinese autoworkers get paid as little as $300-$400 CAD per month, which was suggested to be the primary reason why they are able to produce such affordable car lines. Such a claim is false because the average blue-collar worker was earning closer to $1,400 CAD (7215 Yuan) per month, and the real reason for their success is that Chinese automakers have managed to scale their way to the top by focusing on the same developing economies that legacy automakers disregarded.
After entering the 21st century with practically no global car market share, Chinese auto brands are becoming to go-to choice thanks to their clean energy technologies (something that legacy automakers fought against). Thus, legacy automakers should take accountability for embracing MMC-thinking and not pursuing aggressive R&D strategies, instead of blaming China and Chinese automakers. Had legacy automakers decided to pursue aggressive investments into future technologies and technological advancements, there is no scenario where they would have had to worry about getting supplanted.
Chinese Minister He Guangyuan’s thinking directly contributed to automaking successes
At the start of the 21st century, China had little capacity to produce cars. Before that, in 1985, China was barely producing any cars. The Soviet Union was dominant exporter of cars to China, prior to being unseated by Japanese automakers. Then in the 2000s, things began to change as China went from producing 2 million vehicles (2000) to 29 million (2017), and their global market share of rose from 3% (2000) to 30% (2017).
During a dip in 2012 that saw Chinese automakers lose some of their market share, former Minister of Machinery and Electronics Industry and Minister of Machine-Building Industry, He Guangyuan, made remarks that challenged China rethink about how it thought about automaking. Those comments were a critique of Chinese automakers for relying too much on assembling foreign cars and not enough on developing vehicles from scratch.
In 2015, China introduced a “Made in China 2025” policy, a nation-wide effort, that focused on upgrading manufacturing capabilities across multiple industries, including automaking. China also introduced measures that required legacy automakers to establish joint ventures with Chinese automakers to produce vehicles in the country (50/50). These measures were introduced after local manufactures started to face existential challenges, to help bridge the technology gap and to help develop Chinese brands. Eventually these requirements were lifted and legacy automakers like VOLVO and BMW took control over their joint ventures.
The ”Made in China 2025” policies were focused on changing China’s reputation from being the world’s go-to for cheap low-tech goods to becoming a powerhouse in the production of advanced technologies, but also to decouple its industries from reliance on other countries. These policies incentivized R&D by reducing tax rates for high-tech companies, incentivizing M&As of foreign technology companies, and even included funding for greater investments in R&D. In lay terms, their strategic approach focused on building up more R&D centers, more sustainable production with an end-goal of becoming a leader in green manufacturing, becoming more active in smart manufacturing, and ensuring long-term access to key materials necessary for production.
How successful has the “Made in China 2025” been? In 2022, the market share of Chinese car brands in China eclipsed 50%, while German and Japanese automakers both fell under 20%. By 2024, Chinese automakers had accounted for over 25% of the global auto market share, and Chinese automakers accounted for 4In. Practically all these successes can be traced back to the decision to pursue aggressive investments into future technologies and technological advancements, something that legacy automakers chose against doing.
The moral of this automaking outcome has to do with privilege
If head starts mattered, then Henry Ford’s (1863-1947) decedents would have made sure that the only car that was being driven around the world today was a Ford Motor Company vehicle. Instead, the company that was made great by old man Ford has squandered their head start and now rank eighth in global auto market share. Had Ford Motor Company (run by the Ford family) stayed true to old man Ford’s principles, it would rank as the most dominant automaker, one that no other automaker could ever supplant.
An automaker like Tesla, and Chinese automakers, would never have come into existence had Ford Motor Company (run by the Ford family) not squandered what was an unprecedented head start: old man Ford revolutionized factory production, and was the first to establish five-day work weeks and to offer comprehensive pay and benefits to his workers. Old man Ford’s goal was to make automobiles affordable and accessible to the average person (thinking that Ford descendants chose to deviate from, while Chinese automakers fully embraced), and to transform society by making transport available to as many people as possible. Additionally, old man Ford believed in fostering social mobility and economic growth by utilizing mass production and through innovation (also thinking that Ford descendants chose to deviate from, while Chinese automakers fully embraced).
Perhaps the moral of this automaking outcome is that having the privilege of a head start in today’s world means very little. Inheriting competitive advantages means nothing if those same advantages are not being expanded upon, by working hard and creating more, and if complacency kicks in. Even with a commitment to working hard and creating more anything short of working the hardest and creating the most can allow an underdog to become the favourite.
