GM losing some traction in China
Even as it struggles at home, General Motors Corp. has had a great run in China, raking in hundreds of millions of dollars in annual profit and recently selling more Buick cars here than in the United States.
But as GM begins its second decade of production in China, analysts, suppliers and dealers are asking: Is the run coming to an end?
The automaker’s flagship joint venture, Shanghai GM, rose to the top by posting successive years of 25% or better annual growth in the number of passenger vehicle sales. But through September of this year, GM’s gains had slid to 14% from a year earlier, even though volume of cars sold in China overall rose 27% during the nine-month period, according to Automotive Resources Asia, a unit of Westlake Village-based J.D. Power & Associates.
Volkswagen, Toyota and Honda, GM’s leading rivals here, all outperformed the market average -- slicing GM’s market share in China by a notch to 10%.
Shanghai GM would have slipped further were it not for zero-interest loans that it began offering in July and steep price-cutting on its best-selling vehicle, the Buick Excelle.
Kevin Wale, GM’s China head, played down the recent slide. “It’s just a timing issue, of being in between new product launches,” the Australian native said.
The automaker’s total passenger and commercial vehicle sales in China should still reach its target of 1 million units this year. And GM isn’t standing still in the world’s fastest-growing market and the second-largest behind the U.S.
Last month, Wale signed a deal in Hefei, about an hour’s flight west of Shanghai, to build a $210-million proving ground on 3 1/2 square miles of woodland in Anhui province.
This week, Wale and his top boss, GM Chairman and Chief Executive Rick Wagoner, were in Beijing to unveil plans for a $250-million Shanghai campus and research center that would develop energy-efficient vehicles for the China market.
The latest investment, part of about $3 billion that GM has allocated for China in the last three years, is likely to help the company over the long haul as Beijing seeks to reduce pollution and its reliance on crude oil, which is nearing $100 a barrel -- in part because of surging demand from China and other developing nations. China’s central government this week raised retail pump prices by 10% (to about $2.60 a gallon for mid-grade gasoline), and a new fuel tax of at least 30% could be imposed in March.
GM’s more immediate challenge in China is to keep sales growing, but it won’t introduce a new lineup of vehicles until late 2008 or 2009, GM’s suppliers and dealers say. And some of the carmaker’s current models are showing signs of wear.
Buick, GM’s top brand here, has a storied past in China; the last emperor bought two of them more than 80 years ago.
Today, the Excelle accounts for more than a third of all GM passenger vehicle sales in China, which totaled 372,883 in the first nine months of the year. But sales of the compact-class Excelle increased by just 9% this year while the mid-size Buick Regal -- the model that GM began with in China -- saw a decline of 58%.
Although GM’s newer Buick Lacrosse and Chevrolet Lova are selling well, analysts say the automaker doesn’t have enough sharp products on the market to gain on a crowded field of about 50 domestic and foreign joint-venture manufacturers.
“Japanese products are getting very popular because of their design,” said Yale Zhang, a Shanghai-based auto analyst with CSM Worldwide. Their exterior and detailing, he noted, reflect an understanding of shared Asian sensibilities. “More overall zhongyong,” Zhang said, invoking a term that refers to balance or the golden mean in Confucian thought.
Richard Yu, 36, paid about $15,000 for a new silver Excelle last year. “One of the main attractions was the solid background of GM,” said Yu, who has an MBA and is between jobs. “It’s one of the biggest companies in the world.”
Yu was having his car serviced recently at a Buick dealership in the southern city of Shunde. Asked about his experience driving the car, he uttered three words in English: “Safety, practical and comfortable.”
However, Yu said that if he were buying a vehicle today, he might make a different decision. “What I’m looking for right now is not just safety and comfort, but also energy saving. Buick’s gas consumption is a little bit higher, especially when compared to the Japanese brands.”
J.D. Power’s 2007 quality report on the Chinese market shows Asian brands holding the top ranking in each new-vehicle segment. GM was runner-up in two of seven categories, with the Chevrolet Epica coming in second to the Hyundai Sonata, and the Buick GL8 minivan ranking behind the Honda Odyssey.
“Why haven’t they [GM] brought a new product to fortify their market here?” asked Michael Dunne, the Shanghai-based managing director of J.D. Power’s China operations. “What product can go up against Toyota, Honda and Nissan -- and win?”
Toyota, which is challenging GM as the world’s largest automaker this year, arrived later in China than GM and got off to a surprisingly slow start. But sales have picked up dramatically this year, jumping 62% through September, led by Toyota’s new Camry and Corolla. Honda sales rose 32%. Toyota and Honda each have about 8% of the passenger vehicle market in China.
But by no means has Dunne written off GM in China. The market here is unusually dynamic, he said, and automakers have sometimes been carried by suddenly shifting winds.
Volkswagen, which once controlled 50% of China’s market but became moribund in recent years, surged this year with sales increasing by 37%. Sales of Hyundai in China plunged 18% this year after a meteoric rise in 2006.
GM has recently shown signs of revival in the U.S. and is far ahead of Ford and Chrysler in China. Analysts note that GM can keep the momentum going here by doing the things that brought its early successes in China: smart local adaptation of North American models, a solid dealership network and strong marketing and servicing.
But the days of making fistfuls of easy money are over. When GM started making cars in China with its joint venture partner -- a requirement by the Chinese government -- the market was heavily protected by the state. Government agencies and state-owned enterprises were the main customers, paying premium prices for big, gas-guzzling cars with foreign nameplates.
The market has since shifted to private and increasingly sophisticated consumers, and dozens of Chinese auto manufacturers have jumped into the fray, helping drive down prices dramatically.
During that shift, GM made some missteps. In 2003, it launched the Excelle, a compact car designed by GM’s Daewoo subsidiary, and labeled it a Buick, diluting the luxury image that the brand had long enjoyed in China. The Buick Regal debuted in China in 1999 for more than $36,000; the cheapest model of the Excelle today sells for about $10,500.
“If they could do it over, they would have badged it a Chevy,” Dunne said. GM also sells cars in China under the Cadillac, Opel, Saab and Wuling brands.
Dunne and others in the industry say the loss of key executives in China also cost GM some momentum. In 2005, the automaker’s longtime China chief, Phil Murtaugh, abruptly resigned; analysts speculated that he thought GM headquarters in Detroit had begun to meddle too much. Murtaugh, recently named Chrysler’s Asia head, didn’t respond to a request for comment.
Top executives at GM clearly are betting a big part of the corporation’s future here. Although it is shrinking its plants and workforce in the U.S., GM this summer opened a $265-million engine plant in southern China -- its seventh major assembly operation in the country. The company now has 20,000 employees in China, and Wale expects it to be the world’s largest market in 20 years.
He said GM has “no large plans” to use China as a base to export cars to the U.S.
“We are focusing on the China market,” Wale said.
