Tough times could be ahead for independents as cars get cheaper, better built

If Chrysler with its low-cost, Chinese-made sub-compact car and other Chinese manufactures are successful, those vehicles will likely cause a big shakeup in the Canadian auto sector.

The annual Detroit auto show always produces a lot of news, mostly focusing on new car designs and models that will appear on dealer’s lots. But two pieces of news caught my eye — news that could spell trouble for independents over the next decade.

In Detroit, some Chinese car makers announced they will soon be selling low-cost vehicles in Canada by 2009 and Chrysler signed a deal with China-based Chery Motors to manufacture a sub-compact car for the company to be sold in Canada and the U. S. that same year. Representatives of the companies said North American car buyers, worried about high gasoline prices and a slowing economy are looking for inexpensive, fuel-efficient cars to buy; and the Big Three North American auto makers are looking overseas to get those cars into the market fast. Quickly following these announcements, J. D. Power and Associates released their Vehicle Dependability Study, looking at long-term vehicle reliability. The report found quality problems in today’s vehicles have fallen, up to 20 per cent since 2003. Today’s cars and light trucks are better built and are getting more reliable, and often are made to go longer distances between oil and part changes.

If Chrysler with its low-cost, Chinese-made sub-compact car and other Chinese manufactures are successful, those vehicles will likely cause a big shakeup in the Canadian auto sector. Pair that with the growing trend for producing longer-lasting and better quality vehicles, Canadians could have cars that are cheap and rarely break down. And if they do break down, the cars can be disposed of instead of repaired.

Jim Anderton and I had a long talk about this, and as you will see in his column, he is worried about the same thing. But before you think Jim and I have lost it, think about this for a moment. The North American car makers now make a greater portion of their profits in building and selling cars for Asia and South Asia than for the domestic market. So if they can build cars cheaper overseas, working with local car makers while maintaining a high-level of quality control, why not import those vehicles instead of making them here at a higher cost? Now where does that leave the independents? If one of these cars is sold for some $13,000 or less and runs for some 10 years or more without a major repair or problem, then these cars will first cut into possible profits to be made by independents from the sale of service and parts. And if something major does happen to the car after some 10 years or more on the road, it will have depreciated to such a point that if the repair is expensive, someone might very well decide it’s cheaper to get rid of the car and buy a new one instead. That again would be another hit for the independents.

Right now, it is too early to tell if such car will ever make it in North America. But if they do, and there is nothing to suggest that it completely out of the question, this industry will really have some tough times ahead.