General Motors Corp., which recently revealed plans for massive layoffs in the United States, announced Wednesday that it is forming a joint venture to manufacture pickup trucks in China.
Although analysts said GM is not likely to make money on the venture in the short term, the move symbolizes the commitment by the world’s largest auto producer to aggressive expansion overseas--even as it carries out plans to dramatically reduce its North American operations.
The U.S. auto maker will join with China’s Jinbei Automobile Co. to form the Jinbei GM Automotive Co., with projected production of 600 to 1,000 S-10 pickup trucks this year and as many as 50,000 trucks annually by 1998, according to statements by the two sides.
GM will hold a 30% interest in the $100-million joint venture, a company spokesman said. The trucks, to be sold only in China, will be assembled from kits that include a combination of imported and locally produced parts.
Analysts said the investment by GM, although negligible compared to the 21 plant closings and 74,000 layoffs it has slated for North America, is an encouraging sign that the auto maker’s strategy is becoming more global.
“If you have your eggs in many different baskets, there’s a greater chance that overall you’ll be profitable as a company,” said David Garrity, an analyst at the Nomura Research Institute in New York.
With the potential for growth in the U.S. auto market diminishing, GM and other U.S. auto manufacturers have begun to concentrate more of their resources on overseas markets. GM’s European operations, which Wednesday reported record sales of 1.6 million cars last year, have helped the company offset its huge losses in North America. Since 1990, GM has invested in components and auto-producing ventures in markets as far flung as Tunisia, Nigeria and Turkey.
Although the dollar amount of such investments and the potential profit isn’t large by GM standards, learning how to handle the often-tricky workings of joint ventures and production in foreign countries will benefit GM in the long run, according to auto analyst Maryann Keller of Furman Selz in New York.
“If they don’t do it, the competition will,” Keller said. “GM ought to be structured as a global company. Look at where the growth is--not in North America.”
A report by the University of Michigan’s Office for the Study of Automotive Transportation forecast that the U.S. passenger car market is expected to grow only 1.1% per year over the next 10 years, in part because nearly every American who buys a new car today is replacing an old one.
But in markets such as China and Eastern Europe--where GM has sunk $800 million into new production facilities--the potential for new customers is much higher.
“We expect China’s vehicle market to follow a pattern of steady growth,” said Thomas S. McDaniel, GM vice president for Asia Pacific operations.
Still, the deal is perhaps more important to China’s attempts to attract foreign capital than it is to GM. In an apparent mark of the importance attached by China to the deal, Vice Premier Zou Jiahua met Wednesday afternoon with McDaniel and his party, the New China News Agency reported. A ceremony establishing the joint venture was held in the Great Hall of the People on Wednesday morning, the agency said.
The Jinbei Automobile Co., sometimes known by the English translation of its name, “Gold Cup,” is one of China’s key producers of light trucks, operating two vehicle manufacturing and 48 component factories in the Shenyang area, according to the news agency.
It now produces about 20,000 light trucks annually, the agency reported. The company also makes minibuses and trucks. The joint venture will be located in the northeastern city of Shenyang.
Both the Chinese and U.S. companies have faced difficulties in recent years. Jinbei reported a loss of $11.25 million in 1990, but a GM spokesman told reporters in Beijing that the Chinese firm made a profit last year. GM lost $2.2 billion in the first nine months of 1991 and is believed to have lost another $400 million in the fourth quarter.
But as GM cuts away at its North American operations to staunch the flow of red ink, expansion overseas will likely become more and more important.
Said analyst Garrity: “It is important for GM to establish a meaningful presence in auto markets that will continue to grow over the next 10 to 15 years.”
Harmon reported from Detroit, and Holley reported from Beijing.