Dudder: Learning Chinese

The debate around the table moved from the troubles faced by the Big Three to the eventual Chinese invasion of the American auto market.

The debate around the table moved from the troubles faced by the Big Three to the eventual Chinese invasion of the American auto market. I won't reveal the particular players in this diner drama, except to say that all but yours truly and one other guest were foreign born. Most were from Germany, though England and France were well represented, and—in most cases—their view of the coming Chinese onslaught was colored by their country of origin. Such that it was a near-given that the English refused to believe that anyone in Europe or North America would ever buy cars built by the Chinese, unless it was a name brand vehicle produced in China and exported around the world. And that the Germans and French participants thought Americans would buy an indigenous Chinese vehicle, but Europeans would never be as stupid as to trust their lives to what most certainly would be a shoddily built knock-of of First World technology.

I let the other American at the table assure our fellow diners that country of origin would not be a deterrent to American car buyers, especially if the price delta between name brands and discount merchandise was so large that those ultimately swayed by price couldn't afford to pass up such a deal. "We're willing to try anything once," he said, "but if people feel you're quality stinks, they'll drop you quicker than bad lox." Did I mention my fellow American was from New York?

What struck me most about this conversation weren't the eerie similarities to the reactions in many board rooms when Japanese and Korean automakers arrived on our shores. It was how the participants could have just as easily been discussing the sales chain for any upper mid- to lower-level retailer. Once below the image brands, the competition is intense, and buyers are siphoned off from Sears and Kmart to spend their money at Big Lots or the local dollar store. In this model, buyers are looking for bargains, and are willing to forego the fancy packaging and name brands for a lower price. For them, the utility is about equal, even if the quality always isn't, and it allows this buyer to get more for less without too much risk.

Higher-end retailers are focused on one segment, such as electronics, and have little else to draw their attention away from the core customer. They're also less bureaucratic, which means they're closer to the customer. The broad middle tries to be too many things to too many people—due, in part, to their general store roots—so focus is lost as they chase volume. The American retailing scene has been playing this game—with mixed success—since the 1970s, about the same length of time as American automakers. In more heavily regulated and insulated Europe, the day of retail reckoning has yet to fully arrive, though it will come. When it does, bargains will be had both in the aisles and financial markets. Will Europeans and Americans buy Chinese cars? Yes. The real question is whether the mainstream OEMs will finally begin to focus on their customer's desires like the image brands, create a compelling image for their volume offerings, hack away the layers between management and customer, and cherish value. If not, we'll all be learning Chinese the hard way.