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Are You Worried About the Health of the Auto Industry? Watch China

Engineers monitoring car in emission chamber
Roger Tully | Riser | Getty Images
Engineers monitoring car in emission chamber

There's still a quaint notion around much of America that the only thing that matters in the auto industry revolves around Detroit and the US.

After all, Motown is where the Big Three are based, and for decades the fortunes of the our automakers was tied to how the US economy was doing.

That was then. This is now. Now the global economy, not just the US, is crucial to the economic well being of automakers.

And specifically, China is the market to watch.

It's not just because China is the world's largest automarket. It's more about seeing how the auto industry adjusts to a Chinese auto market that is wrestling with two huge challenges: moderating sales in congested big cities like Beijing and what happens as China pushes automakers to share more of their technology.

On the sales front, as China slows down, so will profits there for foreign automakers. GM is battling Volkswagen for top sales in China and both companies are closely watching China efforts to reign in sales.

For years, growing sales in China wasn't terribly tough. If you had the foresight, as former GM CEO Rick Wagoner did to make the early investment, you were rewarded with sensational sales and great profits. The days of rolling out just about anything in China and expecting double digit monster sales are winding down. That means automakers will have to be savvier about what they build and sell in China.

Which brings up a second point. The Chinese are increasingly pressuring automakers to share their secrets on electric and next generation vehicles. Today's New York Timeslays out the dilemma GM execs are facing with sales of the Chevy Volt in China. In order for the car to qualify for incentives that would boost Volt sales, the Chinese leadership wants GM to share it's tech secrets to building/designing and electric car.

How both of these issues plays out in the next year or two is anyone's guess. But make not mistake, the auto leaders realize that as China goes, so goes their future growth plans.

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