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Why China is critical to U.S. automakers -- obvious, right?

Mitt Romney's recent ads about Jeep shifting capacity to China require a broader context.

By Clifford Atiyeh Nov 1, 2012 11:22AM

Chrysler wants to increase sales in China, just like every American company with large global operations. So why is Detroit native Mitt Romney, whose father headed American Motors, in such a fuss?


Last week, a poorly edited Bloomberg story suggested that Chrysler would move all of its current Jeep production from the U.S. to China. Five paragraphs later, the story confirmed that Jeep production in China would apply only to Jeeps sold in China. That's rational. Instead, Romney’s campaign pounced on the very first sentence and whipped up a TV ad to rail against the Obama-led auto-industry bailout.


“Obama took GM and Chrysler into bankruptcy,” the announcer said, “and sold Chrysler to Italians who are going to build Jeeps in China.” Here, have another listen.




While pundits everywhere have called Romney’s ad a blatant lie, it’s really not. What Romney said days later at a campaign stop in Ohio, that Jeep “is thinking of moving all production to China," was indeed a lie. Romney’s campaign apparently didn't read the entire article.


We’ve known for months that Jeep wanted to expand production in foreign markets. In March, Chrysler parent Fiat signed a letter of intent to build a factory in St. Petersburg that could crank out 120,000 Jeeps per year. The next generation of smaller Jeeps, such as the Liberty, Patriot and Compass, will be based on Fiat platforms to save costs and introduce more competitive designs. So it’s only natural that Chrysler – which hasn’t built a Jeep in China since Daimler sold Chrysler in 2007 -- would want to re-enter the world’s largest car market.


Despite all of the Big Three closing U.S. factories or cutting U.S. workers within the past four years, there is zero evidence that China is to blame or that assembly is instead shifting to China. It's simple: Cars are more profitable when they’re built and sold in the same country. It eliminates shipping costs, tariffs, customs duties and fluctuating currencies. It builds international cooperation and supports local workers. But ultimately, most of the profit the Big Three make in China – and there’s a lot of it – comes all the way back to U.S. headquarters.


Everyone knows that China is the auto industry’s money tree. For the past decade, Chinese car buyers, spurred by government incentives and subsidies, have eaten up cars and trucks like $5 red velvet cupcakes. When the U.S. recession hit in 2008 and Chrysler and General  Motors went bankrupt in 2009, China was the one positive note in otherwise devastating quarterly reports. Even with European car sales in the toilet amid a regional debt crisis, China is still churning out year-over-year gains for nearly all automakers.


But business is finite. Faced with canceled incentives and overcapacity, the Chinese auto market is now growing slower than the U.S. market for the first time in 14 years. Luxury car companies are cutting prices left and right. Japanese automakers, facing a Chinese boycott of their products after a political land dispute between the two countries, are seeing double-digit declines. The Chinese government forces all foreign automakers to sign joint ventures and share profits with local companies, or else face seriously high import tariffs. Copyright infringement still runs rampant and is nearly impossible to fight. So while China isn’t a shining model for free trade, it's certainly as bright as gold.


General Motors, the best-selling foreign brand in China for seven consecutive years, has been building and selling cars there since the late 1990s. Last year, it sold a record 2.55 million cars. In September alone, GM sold four times as many Buicks in China than in the U.S. Ford sold nearly 520,000 cars in China last year and is on track to add four more plants. Chrysler, which has no factories in China, is last among the Big Three. It didn’t come close to breaking 100,000 units last year. Chrysler's new expansion in China is absolutely paramount for its success back home.


Whatever your opinion on the bailout – despite the success, I still loathe it – the fact is that Chrysler is employing thousands upon thousands of American workers and just wants to expand the business by making more money overseas. Who can possibly be against that?


Clifford Atiyeh has spent his entire life driving cars he doesn't own. Based in Boston, he is the senior news editor for MSN Autos, and contributes to The Boston Globe, Car and Driver, and other publications.

138Comments
Nov 17, 2012 11:22AM
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The U.S. should have the same policy, if foreign car companies want to sell cars here then they should be produced here. The Japanese have been sending autos here for years and not partnering with an American company, so ALL the profits go back to Japan, none stay here to help our economy. Also it seems all foreign auto companies are anti-union in this coountry while in their home countries they are unionized! Go figure.
Nov 17, 2012 12:50PM
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How is building and selling jeeps in China going to improve our economy?  Who is going to be working in the Chinese factories?  Americans, I don't think so.  Why not build them here putting Americans back to work,  ship them to China increasing trade back to our side,  that would improve the American economy.   Oh by the way, labor unions who supported Mr. Obama need to understand all he wanted was your vote.
Nov 4, 2012 5:10PM
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"I find it funny how "Obama sold Chrysler to Italy" is a big deal. I never heard anyone complain when Chrylser sold to the Germans. "

Mercedes Benz used Chrysler for all they were worth and then threw them out like an unwanted husk. Under MB Chrysler quality took a nose dive. The quality of their vehicles went from average to pathetic. If it hadn't been for MB'S poor handling of Chrysler I very seriously doubt that a bailout would have been needed in the first place.
Nov 2, 2012 10:26AM
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I find it funny how "Obama sold Chrysler to Italy" is a big deal. I never heard anyone complain when Chrylser sold to the Germans.                 Hypocrites
Nov 17, 2012 1:48PM
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There are good manufacturers here in the United States that are a whole allot better than those safety cutters in china.  Look at all those recalls for bad parts.   You know where those part come from, don't you???    CHINA that's Dump china for good american manufacturing.

Nov 17, 2012 12:42PM
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How is building and selling jeeps in China going to improve our economy and get America back to work?   Who is going to work in the Chinese factory?  Americans?  Build them here ship them over there and put Americans to work.
Nov 5, 2012 3:38AM
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"But ultimately, most of the profit the Big Three make in China – and there’s a lot of it – comes all the way back to U.S. headquarters."

Exactly, just like most of the profit the Japanese make in the U.S. -- and there's a lot of it -- goes all the way to their Japanese headquarters.

"The Chinese government forces all foreign automakers to sign joint ventures and share profits with local companies, or else face seriously high import tariffs."

Can you imagine if we did this to Chinese companies (really just fronts for the Communist government)?  Imagine if we reciprocated accordingly and made THEM build all their products HERE via a joint venture/partnership where they could never own a majority stake or face HUGE tariffs on their exports to the U.S.? 

It's time to level the playing field.  Tomorrow we have the opportunity to elect a President to make that happen rather than reelect a moron that knows nothing about the global economy, or how to save/create American jobs, or knows a darn thing about business (job creators) in general. 
Nov 17, 2012 11:08AM
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If Jeep moves All production to China, there will be a Lot of Americans selling teir Jeeps. If i Was Chineese i would buy Chineese products, but i'm American so bye-bye to my jeep !
Nov 17, 2012 1:07PM
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funny the bias media doesn't mention Obama's bailout to GM was a payoff to big unions!

they shut down dealerships that didn't need to be shutdown and thousands lost their jobs

all for the big unions chicago thugs! and thousands of job went to china and other countries

with Obama's stimulus payoff money! but the left wing media forgets to mention all the mistakes,

lies and corrpution and failed policies of Obama the messiah! Chevy Volt for example!

Obama is anti american capitalist who has destroyed the cheap energy that americans could have

with his regulations and while energy fuel and food skyrocket the media is silent!

Nov 17, 2012 12:53PM
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Fiat got their share of Chrysler for nothing just come take it said the auto task force. The union owns some to cover their pensions. What about the 789 dealers that were canceled that cost the manufacturers nothing? How many American jobs do you think were lost because of this action by the Feds? Probably as many as were saved for the United Auto Workers Union. The union played a big part in both Chrysler and GM's demise. The labor cost for both Chrysler and GM is much higher than any of the Asian auto plants building cars in the US. Don't be surprised to see Chrysler broke again they are now trying to help Fiat with their junk bond credit 2 looser companies that benefit from the US taxpayer bailout funds. If the Feds would have let them go BK on their own maybe some company could have made a better go of it. 
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