The China car flood is out of control

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The automobile changed our world and symbolises prosperity and personal freedom for billions of people. Making automobiles, meanwhile, is a miserable, grinding affair.

The world’s automakers eked out an aggregate operating margin of just 3.6 per cent last year; it was collectively less in dollar terms than that of just one large technology company, Apple. Understanding why helps to explain the current angst surrounding iconic car brands in the US and Europe and the threat from Chinese new entrants — and what might be done to address it.

The big problem is that, as much as customers like buying cars, nations are more in love with just making them. The closure of a car plant is as much a societal bombshell as it is an economic decision, which means that decision often gets deferred. No politician wants to see thousands of jobs lost on their watch. Auto plants aren’t just factories for consumer products but also symbols of economic vitality and reserves of industrial capability underpinning national security.

The result is chronic overcapacity. About 85 million new passenger vehicles will be sold around the world this year, according to a new report from BloombergNEF. Yet the global industry is capable of churning out 142 million vehicles.

‘The........

© Brisbane Times