- The Washington Times - Sunday, November 12, 2006

SHANGHAI

Government worker Xue Weiqing is just the sort of customer on which General Motors is banking to help power its turnaround.

At 33, Mr. Xue is buying his second GM car, a shiny Chevy Lova sedan, after outgrowing his Buick Sail.

“I had the Sail for almost two years and it felt just a bit small, so I decided to go for something a bit roomier,” said Mr. Xue, waiting for his shiny dark blue sedan at a Chevrolet dealership in western Shanghai.

General Motors Corp., beset by sluggish sales and crippling legacy costs, needs China — the world’s third-biggest car market behind Japan and the U.S. — to provide growth it won’t find in the U.S. and other Western markets as it engineers its comeback.

While it closes plants and trims production in North America, GM is pouring more money into China, with plans to spend $3 billion from 2004 to 2007. It already has five vehicle factories and one engine plant in China, an auto financing venture and is quickly expanding dealerships.

The investment seems to be paying off.

Last year, GM surpassed German rival Volkswagen AG to become the No. 1 automaker in China, GM’s biggest national market after the United States.

GM and its local joint ventures’ sales jumped 36.7 percent, a tick above industrywide growth, to 645,680 units in the first three quarters of this year, helped by strong demand for newly introduced models such as the Buick LaCrosse and the Lova.

That compares with flat second-quarter sales in North America for GM, which reported a net loss of $3.2 billion largely because of one-time costs associated with its restructuring.

In 2005, GM’s sales in China rose 35.2 percent year over year to 665,390.

“In China, GM operates on a level playing field with Toyota,” says Peter Morici, a business consultant and professor at the University of Maryland, referring to GM’s heavy burdens of pensions and other benefits back in the U.S.

“It does well in China because it has the engineering and marketing know-how to compete without those liabilities,” Mr. Morici said.

GM is looking to its Chevrolet brand to rev up sales volume in this increasingly competitive market, where incomes still average only about $150 a month.

Early last year, GM announced that it would make Chevy its main brand in China. It incorporated the Sail, a compact model that was then part of the Buick brand, into Chevy’s economy to midsize lineup.

“What we’re trying to do is build the brand here,” says Steve Betz, Chevrolet brand manager at Shanghai GM, GM’s joint venture with state-owned Shanghai Automotive Industrial Corp. “We have to win here. That’s the overall goal. We can’t take our focus away from here,” he says.

Chevy sold about 80,000 vehicles in China in 2005, its first year. This year, third-quarter sales were up 51 percent from a year ago, with the company forecasting full-year sales of more than 100,000.

“That’s nice growth in a very substantial market,” says Mr. Betz.

GM also has been helped by strong demand for the minivans and compacts assembled by its second joint venture, called SAIC-GM-Wuling, which accounted for more than half GM’s total sales in China last year.

When GM set up its first $750 million factory in Shanghai in 1998, it faced a battle against Volkswagen and Japanese rivals at a time when competition was so fierce the government was setting price floors to prevent automakers from bankrupting each other with price wars.

GM’s first product for China was a luxury sedan based on the Buick Regal, priced at about $40,000 and restyled for chauffeur-driven bureaucrats.

In recent years, passenger car sales have taken off, as growing numbers of Chinese families buy their own first cars. Meanwhile, the government purchases that once were a mainstay for big automakers have shrunk to 15 percent of total sales.

To survive, GM is adapting, and the shift to Chevy is part of that strategy.

The Chevy familiar to U.S. drivers isn’t the one being sold in China. For one thing, the lineup includes no pickup trucks, but has models such as the Lova that are not sold elsewhere.

The target car buyer is a professional age 20 to 35 — someone like Mr. Xue, who said he commutes to work by bike and uses the car for weekend excursions.

“Our goal is to capture them and keep them for life, bring them through the GM family,” says Mr. Betz. “First, a Chevrolet. But let’s face it. As people get more spendable income, they might want to move up to a Cadillac or a Buick.”

In China as well as at home, GM has plenty of competition. Toyota, Honda, Volkswagen and two major local automakers, Geely Automotive Holdings and Chery Automotive Co., are also fighting for market share by expanding the range of vehicles they offer from minicars and minivans to top-of-the-line sedans.

GM needs another big model to propel sales growth and stay ahead of Toyota, analysts say.

Toyota, a relative latecomer to China, had a paltry 3.5 percent of the market last year compared with GM’s 11 percent. But the company has a dozen plants making parts and assembling vehicles, and aims to raise sales to 10 percent of the market by 2010.

“In the Chinese market, GM enjoys tremendous popularity thanks to successful sales and marketing,” said Zhang Xin, an industry analyst at Guotai Jun’an Securities’ Beijing office. “Their only real competitor is Toyota. But Toyota is developing very quickly all over the world, so it’s possible it may overtake GM as No. 1 here, too.”


Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.

 

Click to Read More and View Comments

Click to Hide