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The Kings of Capitalism
Dear American Capitalist Reader,
The quote itself seemed harmless enough. "The quality of Ford's assets is alright, but because of high labor costs the business is not always profitable." Sounds like something only a true, die-hard capitalist in the mold of a Rockefeller or Morgan would utter, right? And few Americans would disagree that while the quality of their cars could get a little better, the biggest problem facing U.S. carmakers is the cost of employing all those carmakers.
However, the quote is actually from Lu Guanqiu, founder and chairman of Wanziang - China's largest and most acquisitive car-parts maker. The business of car parts has been booming in China, a somewhat surprising fact considering the absolute number of automobiles in China remains relatively small. But exports of car parts reached $15.2 billion last year, 75% higher than the year before, and were a further 38% higher during the first six months of this year. Wanziang and his ilk are using state-of-the-art technology and bottom-of-the-barrel labor costs to provide car companies the one thing they need more than anything – margin expansion.
Speaking to a reporter for the Financial Times, Guangiu was clearly interested in getting his hands on Ford's advanced design and production technology. And it will surprise no one to hear that 1) Ford is obviously interested in selling it to him, since it would raise much-needed cash, and 2) Mr. Wanziang is very keen to distribute auto parts here in the U.S., where he knows no one can even remotely compete with him on price.
You think the UAW is mad now... wait until Ford's parts business is farmed out to the Chinese, and your local Pep Boys has piston rings for your 2006 Mustang with "Made In China" stamped on them.
In a sense, we have let it happen. We have allowed a nominally communist regime to take the best of the communist system - the ability to pay starvation wages to the population - and add it with a healthy dose of get-rich capitalism. It is the best of both worlds. And we transferred technology as well - Boeing did it twenty years ago and was surprised when the joint-venture they had entered to assemble airliners started manufacturing their own. The rise of the Chinese "system" is just now gathering global reach and while its deflationary aspects are something about which economists are raving, the longer-term implications are serious indeed.
Until next time,
Steven Lord, Editor, Trend Investor
