A New Century for China’s Drivers
The New Century has arrived, and it is made in China.
At the new General Motors plant here, the first Chinese-made Buick rolled off the assembly line recently, heralded by trumpets and 1,700 cheering auto workers. Forty dignitaries--from the mayor of Shanghai to the U.S. ambassador to China--autographed the gleaming white hood with a thick black pen. John F. Smith Jr., GM’s chairman and chief executive, signed his name with a flourish and added simply: “#1.”
The New Century, or Xin Shi Ji, looks just like the U.S.-built Buick Century, with a few modifications for the local market. China’s version is presented as a luxury car meant to be driven by a chauffeur; the back seat is elevated for a better view of the road and has its own set of radio and air-conditioner controls. Though most VIPs favor black, the car comes in four other colors: bright white, jasper green, Bordeaux red and twilight blue.
If the first car had continued off the conveyor belt and rolled out of the factory’s gate, the driver would have seen a giant billboard that provides a primer for the new millennium: “Construct modern plant. Make new-century vehicles. Develop new-century people.”
For GM, constructing the modern plant was the easy part. From the day in January 1997 when the first foundation pile pierced a rice paddy, it took only 18 months to build the high-tech factory capable of making 100,000 New Century vehicles a year and employing more than 1,600 local workers. The hard part, GM is discovering in ever-changing China, will be finding enough new-century people to buy them.
When GM first made plans to manufacture cars in China, this country of 1.2 billion people with increasing incomes was the world’s fastest-growing auto market. GM outbid rival Ford Motor Co. in 1995 to partner with Shanghai’s top auto company, Shanghai Automotive Industry Corp., offering cutting-edge technology no other global car company would share. At the time, GM projected that more cars would be sold in China than in the United States by 2025.
Now, with Asia in economic crisis, the companies may have to change their plans for the New Century.
The export market has evaporated, forcing them to rely on domestic sales in China. The size of that market is about 1.5 million new vehicles a year, or about a tenth of the demand for new vehicles in the United States.
When the companies began to sketch their strategy in 1993, six of every 10 new cars in China were bought by government departments or state-run companies. But that key market has been swept away by a new anti-corruption measure, forbidding all state-company managers and government officials to buy cars. The new rule takes effect next month.
“The world is always changing,” said Donald Hackworth, a senior vice president at GM North America, here for the New Century roll-out ceremony. “Today we are launching a new car, the president is being impeached, Iraq is being bombed and the Asian economy is going to hell in a handbasket. We have to be ready to adapt and plan for the long haul.”
Now GM is counting on foreign companies, hotels, fleet sales and wealthy individuals to buy 80% of the new Buicks. The prices of the three models--a basic car, a deluxe version and the luxury New Century--haven’t been finalized but will range from about $36,000 to $48,000. That’s a fortune for most people in Shanghai, where the average wage is about $120 a month.
“I can’t afford one yet,” said Li Qiang, a 26-year-old reliability engineer, as he waited for the unveiling of the New Century. “It would take me 10 years to buy one of these cars.”
To add to the appeal of its models, GM is lobbying to be the first car company to offer financing to buyers--a tough task, because Chinese banks won approval only last month to make car loans.
Even in light of the shifting market, GM hopes to sell 15,000 to 20,000 cars next year after they become available in June, aiming to woo buyers away from imports and from domestically produced models made at Chinese joint-venture factories operated by Honda Motor Co. of Japan and by Audi, the luxury-car unit of Volkswagen of Germany.
The $1.5-billion Buick joint venture is the largest in China, the pet project of former Shanghai Mayor Zhu Rongji (now China’s economic czar), who wanted to develop a domestic alternative to the Mercedes-Benz models favored by officials. Shanghai’s government is determined to make it work.
“Having the mayor assign it as the No. 1 project goes a long way,” Hackworth said.
To be sure, even though the final price hasn’t been set, the Shanghai government has already made deposits on about 2,000 cars.
“To have that many orders four months before production starts is a little unusual in any market,” Hackworth boasted.
The company anticipates selling 40,000 vehicles in 2000, the first full year of production. But many industry watchers think that’s overly optimistic. Len Shapiro, the director of China operations for Automotive Resources Asia, said sales of sedans similar to the Buick will reach about 18,000 in China this year and about 53,000 by 2003.
Buying patterns are shifting away from expensive, company-owned vehicles, Shapiro said. Now six of 10 purchases are of smaller, affordable cars for individual owners or minivans for small businesses. That doesn’t mean that Buick has missed the market.
“They have a good product for China and a state-of-the-art plant,” he said. “It’s a healthy niche, and one that will grow a lot.”
But sales may not grow as quickly as GM had forecast, stretching out the payback for its $750-million investment in the joint venture over two decades, industry analysts estimate.
GM executives say they are studying other options, including importing kits of smaller cars such as the Opel from other plants to be assembled in Shanghai. Teams of Chinese workers have been sent to GM’s plant in Doraville, Ga., where the Pontiac Transport is built, to learn how to make minivans.
