While at a party Saturday night, the conversation naturally turned to the Olympics and China. One of our friends who had been watching the TV coverage commented on a story he’d heard about the Chinese auto market. (Any report about cars or the auto market quickly gets the attention of anyone living in southeast Michigan.) “I heard that, in China, they’re selling ten thousand cars a day! Can you imagine? Ten thousand a day!!
Doing some quick math in my head, I realized that this translates to 3.65 million cars per year. And, as anyone from southeast Michigan could tell you, the U.S. domestic auto market, in a good year, is about 17 million vehicles. So I replied, “that may sound like a lot, but it’s really not.” “We easily sell four times that many – 40,000 per day – here in the U.S.” “Really!?”, he said. He was quite surprised but soon realized I was right when I explained the math.
I bring this up because it’s a perfect example of what an excessive population density does to per capita consumption. If China consumed autos at the same per capita rate as the U.S., they’d be selling 160,000 cars per day in China instead of 10,000. Sure, that number will probably grow, but growth in China is already slowing. They will never reach a sales rate of 160,000 cars per year. Not even close. They can’t. China is far too crowded to accommodate that many cars.
Now imagine that the U.S. and China are the only two nations on earth, and that they agree to trade freely with each other. The U.S. automakers see the enormous population of China and salivate at the prospect of turning the Chinese into U.S.-like auto consumers, driving sales volume through the roof. Not understanding the relationship between population density and per capita consumption, they don’t understand that it will never come to pass.
So what happens instead? Each gives up half of its auto market to the other. The U.S. automakers will lose domestic sales amounting to 20,000 cars per day, while gaining sales in China amounting to 5,000 per day. Their total sales volume will plummet from 40,000 to 25,000 per day. At the same time, Chinese automakers will improve their volume from 10,000 per day to 25,000 per day. The U.S. automakers, even as they find themselves dying, cling desperately to their dream of striking it rich in densely populated nations.
This is exactly what has happened to our domestic automakers, although it’s not trade with China that has been the culprit (yet). It’s such trade deals with other overpopulated nations like Japan, Korea and Germany (all more densely populated than China) that is destroying the U.S. auto industry and, indeed, the entire U.S. economy.