I’m not generally a doom and gloom person. I like to think of myself as a realistic optimist, but I think the Western automotive industry is in for another reckoning. The original reckoning was over 50 years ago when the US automotive giants were caught completely unprepared to handle the invasion of German and Japanese cars. You can read an exceptionally detailed account of it in The Reckoning by David Halberstam.

There are several factors that go into this prediction, and I think it will hit European, Japanse/Korean, and American manufacturers. Effectively forming a repeat of what the Japanese and Germans did to the US, but this time it’s the Chinese doing it to the other established players.

Essentially, the Chinese car manufacturers are better, leaner, and faster at innovating, and there’s a lot more of them than most people realize. Eventually the dam will break and they will be so far ahead of their Western counterparts that there will be several years where they are effectively not competitive. I fear that if this is done in a concerted effort (which centralized planning may actually facilitate), it could be ruinous for the entire automotive industry (not just the OEMs, but also the tier 1 and 2s will feel the pain).

A lot of commentary has already started on the bloating in prices in the car industry, and the decline in quality across the board. Hyundai is a good example of this phenomenon. They seem to be trying to position themselves as a more luxury brand, the new Santa Fe looks a lot like the Land Rovers. They’re charging a premium for this, despite already having a premium brand in Genesis (another classis mistake the Americans spent years unraveling).

The automotive industry also seems to be struggling as a whole with competitive pricing and innovation. Looking at American manufacturers like Ford and Chevy; their full size pickups are getting larger, and a lot more complexity masquerading as luxury on the inside. They’re now a lot more expensive than they used to be, but they are still primarily seen as work vehicles. All that luxury is thus a major liability.

Finally, the enormous sunk costs of production lines and facilities and the inertia of putting out a new model every year has led to an incrementalist mindset. Very little true innovation is happening in the car industry (regulations are partly to blame here). The massive convergence in the industry of what models look like is a great example of this shared complicity.

This makes the entire industry incredibly vulnerable to a textbook shock from a surprise entrant (or multiple). I suspect in 5-10 years or so, many folks will buy a western car out of a misguided sense of brand loyalty and perceived quality, but that will quickly succumb to the superior quality of the Chinese entrants.

The Chinese industry has some lower barriers to entry than the US one does, and there seems to be a lot of capital encouraging that. This competition, if left somewhat unrestrained, can produce a cauldron of forces that will force quality at an increasingly competitive price point. Very much like the Japanese industry worked after world war 2, first with mopeds/scooters, and then finally into automobiles.

One last thought, I think the potential surprise winners could be the likes of Rivian, Tesla, Lucid, etc. Though Tesla seems to be at its own existential inflection point. If they keep a sharp eye on the innovation happening in the Chinese market, they may be able to build some of that into their later models and thus ride that invasion wave to grow their relative market share.

A simplistic view of this would be to say the US consumer would be the benificiary of this, and they probably would be to some degree. With the automotive industry making up effectivly around 5% of the US economy, a slowdown there would hurt the broader economy (not to mention the knock-on effects if the slow down is to the global automotive industry).