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The Globalisation of Automotive Manufacturing

There's an old Greek legend called The Ship of Theseus. According to the legend, the ship was in many battles and had to have most of its parts replaced. Eventually, this led philosophers to ask a question

If we replace all the timber, planks, sails, and ropes, is it still the same ship? 

The same question can be posed of many car brands today. For example, while Ford is one of the most American brands in the world. Just how American is it? According to TIME, the 2017 Ford Fiesta was assembled in Mexico, with a Brazilian engine and a Mexican transmission. Is it still an American car?

Over the past two decades, the global car industry has been increasingly challenged by this concept. There's nothing more British than Jaguar or Land Rover? Both owned by Tata Motors, an Indian company, which took advantage of the GFC, and in 2008 bought Jaguar Land Rover from Ford for US$2.3 billion. Last year, Jaguar Land Rover achieved revenue of around US$34 billion, proving once again that ‘buying the dip’ is the way to make money. How about the classic Swedish stylings of the Volvo? That's now owned by Chinese auto giant Geely.

The Franken car The Horrific 40RROR

China and India's rise to becoming automotive superpowers didn't happen overnight. While there was almost one new vehicle on the road for every person in America by the end of the 1950s, China in 2000 had just four million cars on the road for its population of 1.3 billion. In recent years though, China has been catching up as sales have skyrocketed, hitting almost 29 million vehicles in 2017.

Chinese companies such as SAIC, Geely, and Dongfeng have furthered China's ambitions of becoming a new Detroit, by either outright purchasing foreign brands or establishing joint ventures with them. In 2005, SAIC (then called Nanjing Automobile Group), acquired MG, and in 2010, Geely acquired Volvo. When it comes to joint ventures though, Dongfeng is the most aggressive, having entered into agreements to make Honda, Nissan, Peugeot-Citroen, Renault, Kia and Yulon-branded cars in China.

While there is no question that consumers remain on the fence about Chinese-made vehicles, they are following the path trodden in previous generations by Japanese and Korean car companies, with their diligence and ultimate success opening the door for Chinese and Indian companies to take centre stage in the global car market.

“The Chinese car industry is ready to enter a new phase, and to break out of its home market”, Geely's marketing chief, Alain Visser, told Forbes. “I am confident that we will be first, but I would be very surprised if we are the only ones.”

Looking beyond who owns the brands, the reality is that cars today are global vehicles, assembled in countries that we don’t typically associate with carmaking, using parts brought together from around the globe. Thailand has the 12th largest automotive industry in the world, producing almost two million vehicles a year, including almost a quarter of cars sold in Australia. Meanwhile, South Africa makes around half a million cars annually for brands such as BMW, Mercedes, and Toyota. Mercedes-Benz spokesman David McCarthy told that it doesn’t matter where the cars are built.

The C-Class sedan comes from South Africa, the C63 comes from Germany, the Estate and Coupe come from Germany. We don't have an issue with where they come from and I don't think our customers do either. It's the quality of car that matters.”

Recognising an opportunity, car parts are another area in which China has been making progress, steadily improving the quality of their products. A few years ago, Japanese carmakers – known for their fastidious quality control – began relying on Chinese suppliers for parts, and if you browse any aftermarket car part website you will find it is flooded with Chinese parts.

So when does a car stop being from a certain country? I would argue that we've already passed the point where country of origin truly matters. Carmaking has become an increasingly global and collaborative effort. Whether or not this is a good thing depends on your point of view. But, as the natural result of the globalisation that's been happening since the end of World War II, it looks like it's here to stay.

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Topics: Automotive Research