Read the headlines in the papers yesterday:
CBS News: China Surpasses U.S. In 2009 Auto Sales
USA Today: China Surpasses U.S. In 2009 Auto Sales
Bloomberg.com: China Ends U.S.’s Reign as Largest Auto Market (Update2)
Yahoo: China Surpasses U.S. In 2009 Auto Sales
India times: China ends US’ reign as largest auto market
Air America: China Surpasses U.S. In Auto Sales
In 2009, China sold 13.6 million vehicles, up 45 percent from 2008.
In 2009, US 10.4 million vehicles, down 21 percent from 2008.
China now makes and sells more cars than the United States of America. How did this come about? Who is to blame?
Was it grasping labor unions, bleeding auto companies dry with excessive demands for pay and benefits? Or maybe it was incompetent management like GM’s Roger Smith, skewered in Michael Moore’s 1989 documentary Roger & Me. Or was it a failure of capitalism itself that brought about the demise of what was once the biggest industry in America. Or is there another reason?
The Rise of China
China has been busy building new auto plants and hiring new auto workers. Meanwhile, U.S. automakers have been closing factories and laying off auto workers. With 1.3 billion people, most forecasters expected China to eventually overtake America in automobile production. But this was not expected until 2020. What boosted sales was a 4 trillion yuan ($586 billion) government stimulus in 2009. They also cut sales tax on fuel-efficient cars and offering subsidies to buyers. About 20 percent of China’s auto sales are low-cost commercial vehicles that sell for as low as $5000, which is about 34,000 yuan.
The is some speculation that China’s auto sales numbers may be overstated. For instance, some of the vehicles may have been bought by various branches of the Chinese government and are being warehoused. Gasoline consumption figures have not increased in proportion to all the new cars and trucks. In other words, not all the new cars are driving on the road yet.
Rise and Fall of The Motor City
We are witnessing the downfall of Detroit, which came to be known as “Motor City” because of all the auto plants. What would Henry Ford think if he were alive today? In 1908, Henry Ford revolutionized the fledgling auto industry with the introduction of the Model T, which was the first car affordable by the masses. In 1908 a Model T cost $825 and the price dropped each year after that.
By 1914, the price of a basic Model T was down to $360, about $7000 in today’s dollars. At that time, Ford paid his workers $5 per day, which was high for its time, but it reduced the high turnover of workers. By simple arithmetic, a Ford auto worker in 1914 would have to work 72 days to pay for a new automobile. Every Ford worker could afford to drive a Model T. Every Ford worker was a Ford customer.
Are Chinese Workers Paid A Fair Wage?
How well off is the current Chinese autoworker compared to Ford workers back in 1914? From Chinese Statistical Yearbook 2008, average monthly wages for staff and workers in urban areas was 1,750 yuan in 2006 and just over 2,000 yuan in 2007. Wages in China have been growing rapidly, so I am going to estimate that average urban wages are now 2,500 yuan per month, or 30,000 yuan per year. (That is about $366 per month or $4393 per year. Compare this with annual $6000 GDP per capita, from CIA World Fact Book entry for CHINA). I suspect factory workers earn less than this, but I’ll use 30,000 yuan per year.
With a six-day workweek, Chinese workers earn about 96 yuan per workday ($14 per day). Let’s round up to 100 yuan per day to make the arithmetic simple. To afford a 34,000 yuan economy car, a Chinese worker making 100 yuan per day would have to put in 340 workdays. Compare this with the 1914 Ford worker who only needed to work 72 days to pay for the car he helped build. 340 days vs 72 days.
Chinese workers are underpaid by more than 4x compared to Ford’s workers in 1914. It is no wonder that so many auto plants have closed in America and moved to China. Were Ford auto workers in 1914 really four time more productive than Chinese auto workers today? Not likely. More likely is that Chinese workers are only getting paid 25% or less of what they should be earning.
Chinese Workers Need Labor Unions
Chinese auto workers need to unionize to get a fair wage. They need a Chinese version of the UAW. The question is, are Chinese workers allowed to organize and form labor unions under their totalitarian communist government? I will let the reader answer that question.
The views expressed in this article are those of the author and do not necessarily represent the views of Laguna Beach Bikini, its editors, staff or any other organization.