Senin, 24 Maret 2025

Time to Buy China Automakers?

Mar 24, 2025 By for the Outsider Club

Time to Buy China Automakers?

The average sticker price of a new car in the U.S. is now $49,000. That’s a 34% gain over the last five years.

car inflation

We haven’t seen new car prices accelerate(!) this fast since the mid-1970s when the twin forces of increasing fuel efficiency after the 1972 oil embargo and economic stagflation forced a massive shift in the U.S. economy…

Near and dear to my own heart, one of the casualties was the quintessential American muscle car. The 1975 Corvette I’m (still) rehabbing is a beautiful car – but that engine, holy moly. You’d think the massive 5.7 liter V-8 L3 chugging a gallon of gas every 10 miles could muster a bit more than ~180 horsepower…

My Corvette is a perfect example of what happens when legacy manufacturing models are caught flat-footed by macroeconomic forces.

It would take years for the Big Three to design new engines and chassis. And the downtime to retool factories to build them would blow a massive hole in their bottom lines. So they bought time by lowering the compression on current engines to squeeze a couple more MPG out of them and keep the assembly lines running…

Of course, Japan already had the solution to what ailed the U.S. auto market: the Honda Civic. The puny 50-horsepower engine that got nearly 50 miles to the gallon hit the showrooms in 1972.

That same year, GM had approximately 40% of the customers for new cars, Ford had 30%, Chrysler had one quarter, and the total for all Japanese manufacturers was only 5%.

Two years later, Japanese cars had nearly doubled their share of the U.S. market. A year after that, 1975, Japanese cars commanded an 18% share of the U.S. market.

Ford posted a $10 million loss in the first quarter of 1975, after a $126 million profit for the 1974 first quarter.

The 1975 model year did mark a bottom for the U.S. auto market. A November 6, 1974 New York Times article wrote about sales in October:

Sales by the General Motors Corporation were off 39.4 per cent in the period. The Chrysler Corporation reported a 27.4 per cent decline and the Ford Motor Company, a 24.5 per cent drop.

Import sales, on the other hand, showed a gain, estimated at 3 per cent…

The industry as a whole has about 60,000 workers on either temporary or indefinite layoff this week.

(Editor’s Note: it would be nice if the automakers could reckon time like the rest of us. Just have your model year be the same as the calendar year. Does anybody think "Ooo, I'm getting the car of the future!" when they buy model year 2026 when it's still 2025? Same with fiscal years, really. It would make these little history lessons much easier…)

In any event, the Big Three rebounded form that low to post record sales and profits the very next year. Still, that didn’t prevent the devastating 1978-1982 era that saw sales volumes fall 40% and eviscerated the Detroit economy…

History Doesn’t Repeat…

You may not know that vehicle manufacturing employment is at a 34 year high:

autoworkers

I got this chart From Forbes, it uses Bureau of Labor Satistic data. I don’t think the fact that it’s segmented by the last 5 administrations is significant – seems to me the takeaway should be that America’s auto market is important for any president…

Which is why Chinese cars are effectively banned from the U.S. market.

Because quite frankly, the Chinese are doing it better and cheaper than U.S. automakers can even dream of.

I don’t know if you caught the earnings news from China’s BYD (BYDDF) this morning, but it was a barnburner. Revenue was up 27% last year to $107 billion. It is now the biggest EV/Hybrid automaker in the world, and with 4.3 million units sold last year it is now the sixth largest car company in the world by volume.

BYD still trails Tesla in terms of net profits, but I guess that’s what happens when your cheapest model in China sells for $10,000! Plus all its models will be equipped with its “Eye of God” driver assistance system. This is the precursor to their autonomous driving system and will be free to use.

BYD’s CEO said he would like to expand its global reach – yeah! I bet he would!

China’s automakers have obviously benefited from government subsidies. U.S. automakers have obviously benefitted from U.S. government policy too. We could say the same for Europe, who hasn’t outright banned Chinese vehicles yet but are headed that way…

What about the rest of the world?

In 2020, China exported about 1 million cars. In 2024, it jumped to 4.3 million car exports. That’s good for a 3% share of the global pie, which is expected to quadruple(!) to 13% over the next 5 years.

Ford sold its Brazil factory in 2020. BYD is buying it. Ford says it’s staying put in Thailand, but Chinese EV makers have grown their share of that market from 22% in 2022 to 71% today, according to Bloomberg. Overall, EV sales make up 12% of Thailand's auto sales. Subaru already bailed on the Thai market, and Suzuki will gone by the end of this year.

Stellantis said last year that Chinese competition caused a 30% drop in its Asia-Pacific sales.