Certification Isn't The Only Cost Hurdle For International Car Sales

Illustration for article titled Certification Isnt The Only Cost Hurdle For International Car Sales

As explained yesterday, the cost of testing and homologating cars to fit different regulations is a significant hurdle for selling cars in both America and the rest of the world. But it's not the only cost.


As reader Tim Tom explains, you have to think about production, and that's not always as simple as it sounds. That's double true in China, where the workforce appears very comfortable with quickly moving from one job to another for a raise.

As an automotive R&D engineer I don't think that the reasoning behind the certification is significant in the whole reason why we don't get certain cars in Europe, why you don't get certain in US and so on. It is far from the wonderland that one car can be sold all over the world except North America if there is a version with the steering wheel on both sides. The most popular car in the world - VW Golf is sold in dozens of versions that seem to be the same on the outside, or even in the catalog. Oil tank for cars with the same engine in Switzerland and Germany is 0,7 litre bigger than for cars exported to UK, or Hungary for example. France has it's own regulations for the windshield washfluid tank (It's early morning and I have to come up with my own translations, sorry), due to insurance costs the same engine has to be set to different power and torque numbers (many countries are setting insurance on cars according to number of ponies, so 140 in VW's 2.0tdi can be ok in one country, but other will get 138, because at 139 a higher insurance class is starting). Just adapting the engine to the fuels used in US and Canada is more expensive than getting certification.

The real reason is price. Take for example Fiat 500, but even better - Fiat 500L. You can get Jeep Grand Cherokee for the price of the top trim 500L. You are not realizing it in US, but you have to privilege to buy your cars very, very cheap. Even if EUR to USD conversion was 1:1 exporting cheap cars from Europe to US would be very expensive and would bring very little revenue. BMW, Mercedes and Audi US are making very little money on cars they sell in US if they have to build the cars in Europe and ship it. This is why Mexico is the future of cars for US. Heck even for EU. Half of Skoda Octavia sold on B markets (countries between Austria and Romania, from Austria to the west it's A, from Romania to the east it is C) are shipped from Mexico because the Czech factories are busy producing A quality.

And premium brands can afford it to sell cars with lower margins, far worse troubles for them is to sell cars in Asia. One of the reason China is growing so freakin fast is that it is now basically a vicious circle. You want to produce something cheap, you need to go to China, but if you want to sell something in China...you need to go China and make it there as well. It is almost impossible to sell a tire in China if it did not come from tire factory located in China. That is why Conti, Michelin and all the others had to build or buy rubber companies there. You think VW is happy to have a joint venture with the Chinese government and the CEO of VW is really smiling at the chinese managers in the PR events? They got their hands on every screw in the engines, in the whole cars, half of the Cherry and other chinese car brands models are cars from GM and VW, they tried to sue but the dimensions are changed by one millimeter here and there, no patent infringement. If you want to sell cars in China, you have to build factory there. BMW's worst nightmare. Whole automotive market is expecting that China will buy dozens of millions cars each year. And the fluctuation of workforce in China is horrible. It is actually more expensive to build a car for BMW or VW in China than it is in Europe. Yes the hourly rate is lower but...the assembly line worker usually stays within one factory less than a year. He gets the training in VW and then gets a one dollar per hour more in BMW, then Cisco builds a new factory right next door, then he can go back to VW...

I flew to Hefei, China 3 times in 2013 to train a person for the same job. It costs 15000 EUR to train a person, he gets the basics in the automotive IT systems, and in 6 months he leaves to the competitor's factory with a CV that says "senior"..they know very well he is not a senior, but they don't have to spend 15000 on training, so they win anyway. We spent 45000 to train 3 people for one job last year, and we have dozens of such jobs just in R&D. The high fluctuation just in our 4 factories in China, Malaysia and 2 in India, is costing the company approx. 90 million each year. You would think that "just pay them more"... no. These are not Foxconn jobs for few dollars a day. Top management will leave the company for very little raise..

And last but not least - you guys pay literally half for gas than Europe does, but you are not using the advantage to get twice the mileage for the same money, you use it to buy cars with half the mileage than people in Europe. Your speed limits are worse than in most of Europe, yet you think 120bhp car is a rickshaw. The entry engine in Toyota Yaris IS is bigger than the one we are buying in Auris/Corolla. Just one of the crazy differences...

And you will never get French cars, because... France.

Well, that's a lot to sort through. In the end, it all comes down to how much money a carmaker has to pay to get how big of a slice of a market. This should give you slightly better idea of what some of the money side of that equation looks like.


Photo Credit: Getty Images, FAW factory in Haikou, China pictured in 2004

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Congratulations, Mr. Tim Tom, on COTD today! I would like to gift you with a BMW which this soapy, lovely lady will bring to you upon completion of her bath.