DETROIT -- Foreign automakers face increasing competition in China, but its rapid growth makes the effort worthwhile, a veteran manufacturing expert said.

 

Despite a current slowdown, China sales of trucks and passenger vehicles will likely surpass total U.S. vehicle sales in three or four years, Marcus Chao, president of Lean Enterprise China, said at the Automotive News World Congress here on Jan. 21.

 

Including heavy trucks, 2008 vehicle sales grew less than 10 percent to 9 million, including 5.6 million passenger vehicles.

 

Growth will moderate in the future to roughly parallel China's overall economic growth rate, "perhaps 7 or 8 percent," Chao said.

 

That will make it more difficult for foreign-domestic joint ventures to prosper in the upper end of the car market they dominate, he said. He expects domestic Chinese manufacturers to continue to control both heavy trucks and the low end of the car sector.

 

"China is a unique market," Chao said. "There are no similar business models in other markets."

 

The Chinese government manipulates the auto market to help it manage China's rapid growth, he said. Both the federal and local governments have paternalistic attitudes toward local automakers, in which they often have equity stakes. And the government wants domestics to succeed at the expense of foreign manufacturers, Chao said.

 

The Chinese culture's "thirst for power," a preference to be No. 1 in a small operation rather than No. 2 in a large outfit, will slow consolidation among automakers and suppliers, he added.

 

Chao sees operational challenges in the near term, compounded by a predicted sales decline in 2009. The Chinese yuan is appreciating against Western currencies; operating costs are higher with big increases in labor, materials and logistics; and more capacity is underused.

 

In a 9 million-vehicle market this year, he estimates capacity "conservatively at 11 or 12 million," with joint-venture capacity utilization at about 75 percent.

 

Chao founded the non-profit Lean Enterprise China in 2005 to promote lean manufacturing. He sees the lean approach as a solution to rising operational costs. "It's always time to start going lean," he said.

 

Rising personal income is making cars affordable for more Chinese, who crave the prestige of a car but seek value for their money.

 

"It is a big deal to own a car in China," Chao said. "That's why they insist on appearance, quality and handling."