The NBA is learning what the automakers already knew
Are you down with OCP? That’s a reference to an old rap song, but I’m also referring to the “Outside Context Problem,” a phrase rather delightfully invented by the late sci-fi writer Iain Banks. The Outside Context Problem occurs when you meet an enemy, or a challenge, whose powers or abilities are simply outside the context of your experience. It’s spending your whole life becoming a better warrior with a bow and arrow, only to have someone land on your shores with a Gatling gun and a 10-pound cannon. Alternately, imagine being a high-jumper at the 1968 Olympics and watching Dick Fosbury use a completely unknown technique to win the Games and set an Olympic record.
The National Basketball Association is currently experiencing a bit of an Outside Context Problem in China. One executive made a single tweet about Hong Kong. This sort of thing happens, on a local basis, all the time in our pro sports leagues—an executive or player says something critical about the American government, there is a brief storm of controversy focused on the person who said it, and then everybody goes back to making money with no harm done.
Not so in China. The Chinese government exercises a significant degree of central control over all aspects of business and life in that country. The Chinese didn’t like what the executive said, so they simply punished the NBA, and its players, and their commercial partners, as a whole. Now everybody, including the league’s biggest stars, is working very hard to repair that relationship. Like high-wire artists looking down at the space where their safety net was just moved, these athletes and businessmen are suddenly realizing that there can be consequences for their actions.
I have to think that there are a lot of automotive executives watching this drama play out with no small amount of amusement—because the auto business has been dealing with the Outside Context Problem of doing business in China for quite some time now, and those folks have learned the hard way that China always wins. It doesn’t just win in China, which you might expect; it wins in ways that affect consumers around the world.
Let’s start with this: Are you enjoying the 1999-cc-or-less turbocharged four-cylinder engines in today’s automobiles? Do you find their long-stroke, low-rev, unbalanced-thrashing character to be fascinating and thrilling? Let’s say you’re a Honda Accord owner. How do you feel about exchanging the aggressive, inertia-free, and wicked-sounding J35 V-6 in your 2016 Accord for the turbo four in your new one? How about all the GM customers who have lost a chance to own the genuinely outstanding 3.6 DI V-6 and instead have been saddled with that 2.0-liter turbo clunker? Let’s not forget the 328i, which went from a straight-six to a blown four.
I don’t know a single owner who is happy with any of the changes above. If they’re enthusiasts, they’re even less happy. Let me tell you who is happy: Chinese buyers, who are taxed on displacement. They want a 2.0-liter turbo in their “328i.” As long as the American and German markets were more important to BMW than the Chinese market, those folks could pound sand—but now the shoe is on the other foot and we will all be driving cars optimized for the Chinese market, rather than the reverse.
How about those massive and completely unnecessary “frame” grilles that are now found on everything from Audis to Volvos? Remember when the Audi A8 had a George Foreman grille? Now you can have a neighborhood BBQ on the thing. That change was made for Chinese buyers, who expect their cars to shout their price tags, not whisper. And the insane levels of “surface excitement” on modern crossovers and sedans? Why does every car in every showroom have a whole dinner plate’s worth of scallops? You know the answer.
Want some more examples? Last year, President Trump lashed out at General Motors’ decision to close plants in the United States, pointing out that the company’s belt-tightening somehow didn’t apply to China, where the company spends money freely on infrastructure and production expansion. To make matters worse, at least from an optics perspective, GM doesn’t even own the factories it’s expanding. Those properties are held in partnership with SAIC, the mandatory “joint venture” partner foisted on GM by the Chinese government.
You see, in the United States, foreign corporations are permitted to enter our market without any cost or commitment above what it takes to build a plant and a dealer body, but in China, you have to choose a local partner. That partner gets access to all your technology, all your processes, and all your intellectual property. In exchange, you get… the right to sell to Chinese citizens.
This long-standing rule is finally being relaxed, with companies like BMW now buying out at least some of the equity held by their local partners—but it enabled the country to build a massive production infrastructure using the know-how and effort of foreign investors. Can you imagine the state of Ohio telling Honda it had to let General Motors own half of the Marysville plant, plus all the technical drawings for the Accord? Honda never would have accepted that—or would it? It did in China. Did we give away America’s industrial might for free, when we could have followed a Chinese model and strengthened our homeland economy rather than destroying it? That’s the kind of question that keeps me up at night.
Add it all up and you get a long tradition of automakers playing hardball with the United States, then turning around and meekly taking marching orders from China. The effects of that difference can be felt everywhere, from the styling studio to soup kitchens. It’s why the Buick Envisions on your street are Chinese-made, but the BMWs in China are also Chinese-made. I also suspect it’s part of the reason why we’re buying full-sized pickup trucks in record numbers; at some subconscious level, we understand that the Ford F-150 is pretty much the closest thing you can get to a vehicle designed and built by Americans for Americans.
The patriot in me wants America to fight fire with fire here. If you want to sell Chinese products in this country, you should be forced to open a joint venture with a local firm and build them with that firm. Everything from Lenovo (formerly IBM) ThinkPads to Haier dishwashers should be produced in that manner. Maybe we could force General Motors to create a joint venture with an American firm to build the Envision—I’m kidding, of course, but you get the idea. I’d like to see our country benefit from our buying power the same way China has benefited from the desirability of its own market.
The realist in me, on the other hand, realizes that nothing will change. We don’t have the national will, or the governmental structure, to make it happen. The cars of our everyday future will be built in China and sold here for dollars that will then be exchanged for real estate, driving the price of housing even further out of reach for our young people. Our domestic automakers will close American factories on a whim while building their Chinese infrastructure with deadly seriousness. I think back to my time working for a BMW dealership in the mid-’80s, when it was hugely obvious that these were German cars made dumber and slower-witted for second-tier Stateside customers. The labels were in German, the home-market taillights were better-looking, that sort of thing. We’ll see that pretty soon, only the “home market” will be China, not Germany. The kids will talk about CDM—Chinese Domestic Market. “Hey, if you want the best stereo for your Camaro, you gotta go CDM!”
Alternately, the entire situation could vanish, or invert. We could elect someone who is serious about redressing the balance of trade. There could be massive unexpected shifts in banking, or a major recession, that would throw us back on our own manufacturing base, such as it is. The day might come again when it’s harder to get something made in Taiwan than it is to get it made in the Midwest, when your neighbors rise in the morning and commute to living-wage jobs in manufacturing and supply, where you made your friend’s refrigerator and he sewed your pants and both of you watch television on flatscreens made in Texas or Toledo.
There’s a bridge in New Jersey and it has letters on it that say TRENTON MAKES—THE WORLD TAKES. Recently, Damon Tvaryanas, vice president of the Trenton Historical Society, told a reporter that “Obviously that’s not quite how things are anymore… Government really is Trenton’s No. 1 industry at this point.” That could change. It should change. But it would take the mother of all Outside Context Problems. A really serious OCP. I’d be down with it.
