Car Trading Business Essay
Car trading is a very popular type of business in the world that has proven to be quite profitable for some countries. One country that has clearly benefitted from the trade is China. In the US, vehicles are cheaper with an average price of around $50,000 (300, 000 Yuan). One can also get a luxury car for a cost of $50,000-$100,000, which if converted to Yuan will be about 300,000-600,000. However, people might not notice that the prices of cars in China and US are different. For instance, a BMW in the USA sells for around 87,000 USD (522, 000 Yuan), while the same vehicle is sold for around 200,000 US dollars (1,200,000 Yuan) in China making it $113000 more expensive.
Car Trade between Export Countries and Import Countries
Germany is the country that manufactures BMW cars and exports them to countries like US and China, who import them. However, such a big difference in prices is unfair to the people of China where the prices are sky-high. Thus, of all the manufacturers of cars, China happens to be the country that earns the highest profits. Price disparities prompt people to question why prices in the US are so different from those in China and why manufacturing companies treat countries differently offering the same products.
Currently, the only reasonable thing to cause such differences in prices is the import tariff. The tax imposed on the imports of China is much higher as compared to that of the US, which makes things more expensive in China. Chinese tax imposed on the car companies and dealers for motor vehicle pollution plays a great part in an increase of car prices as well. The reason behind the reduced vehicle prices in the US is the absence of such tax. Car suppliers in China also contribute to the expensive car prices (Terence, Elizabeth & Philip, 2012).
Since more Chinese people become richer every day, the consumption of imported vehicle increases as well. This causes price changes in the market since cars are becoming a necessity nowadays. Today, the rate of supply is constant in order for the manufacturing companies to keep up with the market demand of China. In turn, this drives prices very high since the supply cannot offset demand meaning that there will be no surplus in the country (William, 2013).
Since Tesla, the electric car leader, made a big decision to offer cars at the same prices in every country, there have been some changes noticed. The decision was made for China to profit as an importing country. The company operates in a way that the buyer does not even notice the pollution tax that has been imposed on it. Tesla also shares the tax on pollution with its customers to some extent, which means a lot to China as a country and its people in general (Terence, Elizabeth, & Philip, 2012).
When looking at the statistics of a car business between EU and its partners like China, US and Japan, the value of car exports from EU increased averagely by around 25% per year between the years 2009 and 2011. At the same period, extra-EU imports were increasing at a slower pace, averaging at around 3% per annum. In the year 2011, the US remained the main partner of EU in vehicle exports, mostly comprising of cars. Together with Russia (8 %) and Switzerland (7 %), exports to USA constituted more than half of the EU market. Since 2009, EU car trade with China and Russia have been increasing at a very high rate (individually +47 % and +40 % every year). In the last years, China surpassed Russia and Switzerland and turned into the second biggest market for the cars from EU (19 %) because of an especially solid development. EU exports to China showed a noteworthy development rate of 48% annually in between 2000 and 2011.
In 2011, more than a quarter (28 %) of additional EU car imports originated from Japan compared to the US (20 %) and the Republic of South Korea (14 %) respectively. Imports from the US and Mexico have been growing at a normal rate of about 16 % annually in between 2009 and 2011. At the same time, the imports from South Africa increased significantly (plus 24 % every year). The most grounded relative development of imports has been seen in Morocco yet the total quality remained low. Looking at the car exports by member countries individually, Germany alone is in charge of over a half (60 %) of the total export of EU. The UK ranks second and constitutes more than fifth of German export with a 13% share. In other words, contrasted with their aggregate EU exchange, exports of cars from countries like Slovakia, the Republic of Czech and Lithuania are rather insignificant (Terence, Elizabeth, & Philip, 2012).
A greater part of EU member countries demonstrated a significant increment to the exports of cars around 2009 and 2011: exports have developed quickly especially in countries like Cyprus and Bulgaria, in spite of the fact that their shares are minor. On the other hand, the estimation of car exports have demonstrated a decline over a certain period in just 3 member countries including Finland (- 13 %), Greece (- 33 %) and Malta (- 11 %), whereas the exports from the Republic of Ireland have remained almost stable. With an estimation of EUR 7.7 billion, the share of Germany in the EU auto imports is the biggest (32 % of the EU aggregate), followed by Belgium and Italy, whose shares are above 10 % in total. Looking at the improvement during 2009 through 2011, German imports showed a consistent annual growth (11 % averagely) with a sharp increase in between 2010 and 2011. Imports of Luxembourg and Czech Republic have made the most discernible relative increment to the total EU exports with an average annual contribution of 34 % and 24 % respectively. Ten member countries experienced exchange deficiencies in 2011 with the biggest losses ranging between 400 million Euros and 800 million Euros incurred by Italy, Slovenia and the Netherlands (William, 2013).
Considering the car trade between China and the US, the Republic of China keeps investment and trade barriers that affect the flows of trade in motor vehicles sector, mainly cars. Foreign manufacturers can produce cars in China only if they agree to share 50/50 partnership in joint ventures with domestic producers. Additionally, American and other foreign firms have reported to face significant pressure in relation to technology transfer, exports performance and requirements despite the commitments of Chinese government not to put such policies in place. Even though the US does not import a lot from China, the Republic of China has grown into the fourth largest market of US imports with a total of $14.5 billion in shipment.
China’s interest in cars is prone to keep increasing quickly because its population of 1.3 billion in total demonstrates increasing purchasing power to buy vehicles. For the US, this will mean numerous new opportunities as well as difficulties. Contrary to some markets like Korea, China’s vast inner interest may have been stimulating the business for quite a long period. The rise of China’s interest in the US manufacturers of vehicle parts, for example, Nexteer and B456 Systems, may add to the US technology innovation hence leading to the development of fuel-proficient vehicles with low rates of emission (Terence, Elizabeth, & Philip, 2012).
China’s proprietorship rate of engine vehicles is 58 for each 1,000 individuals, which is a large portion of the world’s normal rate of 175 for 1,000 people and yet, it is well underneath the US rate of 797 for 1,000 individuals. Nevertheless, sales are expected to keep increasing. Noteworthy, construction of a system like the US Interstate Roadway framework might support the development of trade. It has been reported that by the year 2020 more than 30 million vehicles will be sold every year in China with the majority of them being manufactured domestically. Chinese manufacturing limit is growing faster than the interest causing a decrease in normal vehicle costs while individual income is on the rise (William, 2013).
The change of China’s vehicle industry has been a focal objective of the government since 1980s when American Motors Corp. has marked the first joint endeavor consent to deliver Jeeps in China. At that time, there was a big number of Chinese neighborhood automakers. However, state legislature prevented domestic manufacturers from reaching higher quality, innovation as well as administrative gauges without the help of remote automakers. Outside manufacturers were permitted to deliver vehicles in China but only through joint endeavours in which neighborhood partners have no less than a half control. Some domestic partners are guided by civil or local governments (Usha, 2012).
Import customs do not provide information about the destination of vehicle parts and thus, it is unknown what number of Chinese parts goes to the automakers or secondary selling. Some analysts believe that the majority of imports is for secondary selling use. One investigation, on the other hand, looked at the US government Automated Manifest System (AMS) and discovered that in 2010 and 2011 the Detroit 3 imported from China not only basic vehicle parts such as lights, handles, rear-view mirrors as well as systems of ventilation (William, 2013). There is a possibility that some Chinese car parts are imported to more complex segments at any US, Mexican or even Canadian plants. On the other hand, non-Chinese-made cars and solitary models of Chinese-made transmissions, the manual transmission offered in the Ford Horse, were introduced at the US gathering plants in 2012 (Usha, 2012).
China’s latest five year plan, discussed further, emphasizes a generation of new vehicles, for example, fuel cell and electric cars. Therefore, the manufacture of vehicles that use electric batteries, engines, sensors and electronic energy components is especially critical. If China starts exporting such items, it will compete specifically with the producers of additional advanced parts from other industrialized nations even though the country is a great importer of automobile parts. In 2010, China imported transmissions, auto bodies, motor parts, electronics as well as gadgets for about $27 billion. These products were sourced mainly from Japan, Germany, South Korea, France and US. In 2012, exported US car parts comprised of about $1.6 billion in the value of automobile parts in China.
Japan is a giant car manufacturer in Asia that benefits from a great market share. Its cars are exported to countries in Asia, Europe, America and Africa. Their total exports average at $142.7 billion. The country is very famous for selling a wide variety of vehicles both brand new and used. Despite the transportation costs, the sale of used cars and another vehicle brands is still proving to be profitable in Japan due to the low production costs and good quality of the vehicles. Factors that contribute to the feasibility of such car exports in Japan include strict inspection of motor vehicles as well as high depreciation in value that makes the cars worth little after a period of just six. Moreover, Japan has very strict emission standards to test the vehicles (Ralph, 2012).
In most cases, owners and dealers sell Japanese used cars to the auctions of motor vehicles. At the auto auctions, the car owners hide from the people who bid and evaluate the independent cars. Many countries participate in the auction of the used cars because of their low prices. In comparison to China, US car owners retain their vehicles for a longer period of time since an average age of the vehicle in America is from 10 to 18 years. Whereas Japanese vehicle owners struggle with strict vehicle review frameworks that force them to pay more every year (Ralph, 2012).
Japanese sector of the residential business vehicles may differ significantly from the cars that Japanese producers make for export and those assembled in different nations. The owner of a car in Japan prefers advancement and innovation rather than long possession, which compels Japanese carmakers to place a priority on the refinement of new technologies and production of vehicles for the domestic market (Nathan, 2013).
India, another car manufacturer, is also a large user of cars from other countries like Japan. Some of the state laws imposed on the car import are rather confusing to many people making it a very complex and rather vague process. Furthermore, the rules for the import of used cars are even more confusing. The economic imperative of India is to take over the market of Asia, especially China, who are the current leaders. There are several reasons behind this including the aim of Indian car makers to improve domestic companies rather than rely solely on imports. However, the individual import of already used cars is still allowed in the country to offset the balance of trade and retain trade partners. In comparison to other EU countries and the US, strict taxation of car imports leads to high prices of cars in the country (Ralph, 2012).
Car trade between countries that import and those that export is a business that has proven to be crucial for some economies. As seen in many cases, the relationship between the partners is mutual as imports and exports go both ways. Countries like the US produce their own vehicles and yet, happen to be one of the biggest consumers of cars from other countries like Germany and Japan. A few strict rules and a lesser tax imposed on car imports in the US make the prices of cars very low as compared to other countries. In those countries that have high tax rates and strict rules, for example, the tax on pollution, the prices of cars are very high as in the case of China. Strict rules on foreign firms and manufacturers scare away car producers leading to some monopoly in the motor vehicle manufacture industry, which also explains the high prices due to the lack of competition (Nathan, 2013).
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