China's Auto Expansion: Cheap Today, Quality Tomorrow?

China’s auto industry is revving for international expansion.

After years serving as the country where the world’s cars (or at least a large number of their parts) were made, China’s auto execs are eyeing established international carmakers to take over.

Reuters recently listed several such proposed mergers, with Geely Automotive’s parent company approaching Canadian auto parts maker Magna International about a stake in Opel (Magna isn't interested), and preparing a bid for Ford's Volvo unit.

The reputation of China's auto parts manufacturers suffered whenToyota had to recall 700,000 Chinese-made cars with faulty electrical window switches, and after the US National Highway Traffic Safety Administration launched an investigation into flawed tire valve stems made by a Shanghai Baolong Automotive subsidiary. MSNBC reported that the company sold 300 million valve stems prone to cracking, with one fatality attributed to a deflated tire as a result. Two other deaths were tied to treads that separated on tires made by Hanghou Zhongce Rubber, whose importer issued a recall.

These stories don’t do much to quell fears that quality and brand image will suffer if Chinese companies take over quality international auto brands like Volvo. But China’s image is changing: Goldman Sachs is weighing a stake in Geely, and Warren Buffett’s Berkshire Hathaway invested in auto battery maker BYD Co., according to BusinessWeek’s David Kiley.

China is now where Japan was 30 years ago. Before the economic miracle of Japan Inc., "Made In Japan" meant poor quality and sketchy business practices. It will take time for China to compete a similar transformation. As Kiley notes:

Standards for safety, quality and emissions are very different in China than in the U.S., and there is no Chinese automaker that is yet ready for prime time in the U.S. Quality of Chinese vehicles, for example, is often compared with where the U.S. was 20 years ago.

China's products are trending toward higher quality, but it may be some time before China’s reputation—and that of its auto industry—finally gets in gear.