Why the West has lost to China

7NEWS

a day ago

These last few weeks I have been driving around in the latest and greatest cars from a number of European and Japanese manufacturers, cars that cost anywhere between $50,000 to around $500,000.
While they're exceedingly lovely and do so many things well, it became clear to me as I kept losing my cool at the poor implementation of basic technology and general automotive smarts, that there is now an almost generational gap between where the Chinese automakers are and where the Western and Japanese manufacturers sit.
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Want your Apple CarPlay to work wirelessly without dropping out and driving you mad? Don't look to Europe.
Want your infotainment system to look like something from this century? Don't look to Japan.
Want the screen on your $200,000 European car to have the same quality and responsiveness as what you will find in a $30,000 MG, Chery, GWM etc? Look elsewhere.
Want your reversing camera to be in high definition? Japan prefers it in 320p.
Want to be able to control a huge amount of your car remotely via an app that works? Best to look East (or at Chinese-made Teslas).
If you're wondering what I'm talking about, because you have bought into the hysteria that Chinese cars are poorly made and unsafe, then you're living about a decade in the past.
If you're in the market for a new car, and even if you have absolutely no intention of buying a Chinese car, I implore you to go and drive a few and take a look at the price, warranty, and build quality.
Play with the technology, look at all the things it can do and then come back to a known legacy brand and tell me with a straight face it's a better value for money or a superior technological proposition.
Take a moment to realise that the phone, laptop, screen or whatever you are reading this on, is made in China – and soon, most cars will be too.
Paul Maric and I recently had dinner with the CEO of a legacy manufacturer who flat-out admitted his company is decades behind and has no hope of catching up in the near future. His literal words were, 'We buried our heads in the sand and now it's too late.'
How did we get here? Let's take a walk back in time. The Europeans have had almost 140 years of internal combustion engine, engineering and manufacturing excellence and know-how. The first Daimler/Mercedes vehicle was made in 1886. To say they had a first mover advantage with the automobile would be an understatement.
However, as is the nature of capitalism and short-term greed, most CEOs, executives, and shareholders tend to think only in the short term. There could be no more obvious example of this than the technology and knowledge transfer that has occurred from the West to China in the automotive sector.
When the Chinese Communist Party (CCP) opened its market to Western car companies decades ago, they all rushed in like schoolchildren looking for free lollies and their personal mega-bonuses.
However, there was a slight caveat: if you want to sell your product in China, you must form a 50:50 joint venture with a Chinese company. Which, coincidentally, is likely fully or partially owned by the CCP.
You could almost imagine all the European CEOs smirking at the time, 'They will learn our ways, but I'm going to make so much money selling in China, I'll be long gone before that is an issue'.
Fast forward three or so decades, and here we are. The issue is clearly apparent if you are a shareholder in a legacy manufacturer in Europe or the United States.
The Chinese have taken almost every single industrial, manufacturing, engineering and technological know-how from the West and now not only have similar, if not better, cars, excellent engineering, and know-how… but they have stopped desiring Western cars. In fact, they are actually making (arguably better for the money) cars for the Europeans under European brands!
Tell that to someone in the late 1990s, and they would laugh at you. This whole shift of power to the East has been heavily aided by the electric vehicle revolution.
You may have recently seen that several German automakers have joined forces to develop software together, a near-admission that if they don't respond to the technological Chinese threat faster, they're doomed.
The Japanese, too, are in trouble, but at least they didn't take the initial bait as hard (arguably due to the poor social relations between the countries). Still, we're talking about an insular culture that invented the Walkman and then refused to adapt when MP3s and streaming became a thing.
Where the Chinese differ from the Japanese is their willingness to hire and bring in foreign experts – paying them huge sums of money – to improve their products. To really make a point, think about how many Western car brands the Japanese have bought versus how many the Chinese own?
In many respects, the way the Japanese schooled the Americans and Europeans in the late 80s and early 90s when it came to quality and lean manufacturing, the Chinese are now doing on a global scale with respect to technology and electrification.
Like my colleagues at CarExpert and across the industry, I attend many events where I get to speak to CEOs of many car companies and I get asked very frequently what I thought of their cars, and more often than not, my first response is 'have you driven a $30,000 Chinese car recently?'
You know what? Most of them haven't, and the reason they haven't is because Europe and America have hefty tariffs to stop the Chinese from selling cars, which means most (but not all, with Ford's CEO Jim Farley being the most vocal exception) have no direct experience or idea of just how far behind they are.
Australia is an incredibly unique market, where we have no meaningful tariffs and a low barrier to entry. This means that any manufacturer can easily set up shop in half a dozen key cities and experiment in our market.
In fact, the aggression with which the Chinese have entered our market suggests to anyone with an economic mind that the goal here is not just profit, but to capture market share at the expense of legacy manufacturers. To drive them out and then, over time, raise prices.
This is what China has achieved globally, encompassing everything from technology to core minerals. This is what happens when a country's government thinks 50 years ahead, rather than in a four-year election cycle.
The irony that capitalist markets have blocked access to the 'communist' Chinese does not escape me. In a free market, everyone is allowed to sell their product without discrimination, but in Europe and America, when things get tough and the competition is better and cheaper, they close the market down.
Of course, it makes sense to protect jobs and the local industry, but it also insulates those automakers from understanding their competition before it's too late.
I know many of you will rush to the comments to say I am wrong, and I might be – in fact, I hope I am. There are also many areas where Chinese carmakers can improve. The thing is, though, they are listening and they are actually improving. For example, one Chinese OEM updated one of its best-selling cars three times within a 12-month period, purely based on customer feedback.
I am not talking about minor changes; they redesigned the entire rear and altered the vehicle's dynamics, while also enhancing the interior. They treat cars like smartphones.
From what I have seen during my recent trips to China, from the nine million senior software engineers to the incredible factories, R&D centres and the industrial and manufacturing knowledge that exists in the country, I can only assume that the tide has shifted so far East that it will never shift back again.
There's an excellent quote from Apple CEO Tim Cook about how the West continues to misunderstand and underestimate the Chinese manufacturing complex. I have left it below in full, and while it doesn't directly apply to vehicle manufacturing, it gives you a good idea of why China is leaving the West behind:
" 'There's a confusion about China. The popular conception is that companies come to China because of low labor cost. I'm not sure what part of China they go to, but the truth is China stopped being the low-labor-cost country many years ago. And that is not the reason to come to China from a supply point of view. The reason is because of the skill, and the quantity of skill in one location and the type of skill it is. 'The products we do require really advanced tooling, and the precision that you have to have, the tooling and working with the materials that we do are state of the art. And the tooling skill is very deep here. In the U.S., you could have a meeting of tooling engineers and I'm not sure we could fill the room. In China, you could fill multiple football fields…' "
You may have noticed that I have excluded the South Koreans from this, and that's for good reason: they can adapt and change, which has so far enabled them to remain very competitive with the Chinese.
Like the Chinese, the Koreans and Indians are also eager to hire the best and learn as quickly as possible while having a long-term view. This may just be their saving grace.