China - Let the games begin

China's presence in the North American aftermarket demands we be as concerned with developments in its economy as we are with our own. Our government's attempt to stimulate the economy by dropping interest rates is having a devastating impact on the dollar's value on the world stage, particularly in China. The result is lower buying power concurrent with rising costs.Translation: rising prices for auto parts at home are on the way.

But there is another geo-political wrinkle that needs to be added to this equation. China's role as host of the Summer Olympics is having a noticeable impact on business. An intensely proud country, China is committed to putting its best foot forward as it steps to the center of the world stage this summer. Its centralized government will likely stop at nothing to assure that the games come off without a hitch. That commitment will likely manifest itself in two ways: with the diversion of resources and environmental actions.

The Chinese government can commandeer raw materials, energy and production facilities to assure perfection for the games. Steel for a brake plant could produce girders for a stadium. Or fuel to truck parts might be redirected to rental cars.

Probably more significant is the potential for environmental actions to impact the supply of products. A number of western countries have raised the prospect of refusing to compete in the games because of the high levels of air pollution. That is the sort of "loss of face" that is difficult for China to suffer. There is speculation that measures may be taken to improve air quality for the games.

One Far East business newsletter reports the Environment Protection Bureau in Shandong issued warnings to more than 125 enterprises not meeting pollutant discharge standards that they may be ordered to stop production until the games end. This source suggests other neighboring provinces might look at similar pollution restrictions. Think of the impact a 60-day production shutdown would have on our auto parts supply.

As an increasing percentage of our parts come from overseas, we need to pay attention to economic trends in these locations. Even when produced to exact specifications and rigid quality standards, globally manufactured parts are still cheaper than U.S.-made parts.

However, the days of assuming that components from low-cost countries are automatically half the cost of a domestically produced product are probably over.

Our traditional view of a world with geographic or political borders will not apply in the new global economy. The issue is, how long will we continue to think what goes on "over there" has no impact on the North American aftermarket? Like it or not, we are now in a global marketplace, and what happens "over there" very much will affect us "over here."

Bob Moore is president of Bob Moore & Partners, a consulting firm that specializes in the automotive aftermarket. Moore can be reached at [email protected].