TOKYO — Of the challenges facing global automakers in China, the recent downturn of the country's stock market is relative small potatoes, a top U.S. auto supplier executive says.
That is because the big sell-off hurts just a tiny sliver of the country's car-buying customer base, said Jay Kunkel, Asia Pacific president of seat and electronics at Lear Corp.
It undercuts demand among those stung by investment losses. But only about 3.5 percent of the populace actively plays the Shanghai stock market, leaving most unscathed, he said. Moreover, businesses are funded mostly by bank loans, not equity, meaning they are better positioned to weather the storm.
"The stock market really isn't tied to the economy," he said.
Staying on course
Lear, which gets about 10 percent of its global consolidated sales from China, is sticking to its China expansion plans, despite the stock market woes and slowing automotive sales.
"We've had no draw down on our investment plans at all," Kunkel told Automotive News during a recent visit to Japan. "We're still looking at significant sales growth. Our numbers will beat the industry numbers." Automotive News is a sister publication of Plastics News.
But there are big challenges beyond the stock market, he added.
The Chinese economy is losing steam. It grew 7 percent in the first half, down from 7.4 percent last year. Meanwhile, the growth in China's light-vehicle sales slowed to 4.8 percent in the first half of the year, vs. 9.9 percent last year.
And today, China devalued the yuan, which could impact profits at foreign automakers and suppliers. July auto sales in China fell 2.5 percent to 1.3 million units — the lowest level in 17 months.
Many automakers are saddled with overcapacity and have to grapple with the country's moderating economic growth, Kunkel said. In addition, international makes are trying to adjust to the radical swings in customer taste that have come to typify China.
The current case of whiplash is caused by the rapid rise of domestic Chinese automakers, who have deftly carved out a market in supplying hot-selling compact SUVs and crossovers, he said.
"This is something the Western car companies don't even have, let alone at the right price point," he said. What does that mean for suppliers? "If you're with the Chinese OEMs this year, you're having a very good year."
Global makers are also struggling against rising labor costs and scrambling to secure a limited pool of top engineering and management talent. China's education system often falls short in churning out innovative thinkers, and the business world is packed with executives who have known only economic expansion.
"There are no executives there who have actually managed a slowdown, let alone a downturn," Kunkel said. "For anybody under 50 in China, it's been up and to the right for 30 years."
Double-digit growth can hide problems and build in complacency, he added. That makes it tougher to deal with a downturn.
Kunkel said Lear still plans to forge ahead with its own build-up in China, where its biggest customer is Changan Ford, a partnership between Chongqing Changan Automobile Co. and Ford Motor Co.
Through the end of next year, it will open a new electronics plant and a new seating plant in China. It will also expand seven other existing factories there, Kunkel said.
This year, it also created a development center in China for electrical architectures in alternative powertrain vehicles.