G.M., Eclipsed at Home, Soars to Top in China
SHANGHAI — A decade ago, this city had five car dealerships selling
Buicks, the top-selling General Motors brand in China. Today it has 27.
And the crowds of shoppers that fill many of them are young, ready to
pay cash and not inclined to haggle over the sticker price.
As G.M. prepares a public stock offering later this year, China is
emerging as a crucial piece of its appeal to potential investors — and a
surprising down payment of sorts for American taxpayers, who would begin
shrinking their 61 percent equity stake in the company.
In the first half of this year, G.M.’s China sales rose 48.5 percent
over the same period last year, and for the first time ever, the
automaker sold more vehicles in China than in the United States. Just 13
years after entering China, G.M. now says the country accounts for a
quarter of its global sales — blistering growth that even G.M. did not
expect this soon.
“China’s a big piece of the value of the company,” said Stephen J.
Girsky, G.M.’s vice chairman for corporate strategy and business
development. “And since we pull cash out of China, it helps fund
investments in other parts of the company as well.”
Analysts estimate G.M. is worth $50 billion to $90 billion, with China
accounting for about $15 billion of that total. The United States
government converted about $43 billion of aid to G.M. into its equity
stake, which is expected to be sold off over time after the company is
publicly traded. A valuation above $70 billion or so would allow the
government to earn a profit on its stake.
Through joint ventures with China’s S.A.I.C. Motor Corporation and other
local manufacturers, G.M. is this country’s largest vehicle
manufacturer, accounting for about 13 percent of the nation’s fragmented
car market. Its product line aims to cover the broad spectrum of needs,
like the $5,000 Wuling Sunshine, a barebones minivan wildly popular in
rural areas, and the luxurious Cadillacs that can be seen in the wealthy
neighborhoods of Beijing.
This week, G.M. announced plans to create a seventh brand to sell small
passenger cars. In the United States, G.M. is down to just four brands,
after shedding Pontiac, Saab, Saturn and Hummer during its bankruptcy.
“This is not some sort of flash-in-the-pan investment strategy,” said
Michael Robinet, an analyst with the research firm IHS Automotive.
“During the bankruptcy process, G.M. China was the beacon in the night
that G.M. always had in its back pocket, and China will be a vital cog
in G.M.’s machine going forward.”
G.M. said it earned about $400 million from its China joint ventures in
the first quarter of this year, when it earned a total of $1.2 billion
outside of North America and Europe. Its total corporate profit for the
quarter was $865 million because of losses and other costs elsewhere.
While GM’s fast-growing China operations are helping to offset the
automaker’s problems in the United States, it ultimately will need to do
better on its home turf to restore its financial health. On that score,
G.M. earned a first-quarter profit of $1.2 billion in North America,
after losing $3.4 billion the previous quarter, but its market share in
the United States so far this year is down from 2009. Analysts said
G.M.’s overall prospects still hinge more than anything else on its
North American operations being healthy, because that is where it can
generate the most income.
The company’s success in China has been helped by the fact that Chinese
consumers do not have the skepticism about G.M. that is commonly seen in
the United States. In China, many shoppers know little about cars and go
to a dealer for guidance.
“What we offer is accepted at face value,” said Kevin Wale, the
president of G.M. China. “We don’t carry any baggage, basically. We get
treated for what we deliver.”
G.M. officials say no American taxpayer money has been used to expand in
China, though a Chinese government stimulus program that encouraged
sales of clean vehicles and helped farmers and other rural residents buy
vehicles has fueled consumer demand here.
Buick is the company’s star. Favored by China’s last emperor, Buick is
perceived as sumptuous and stylish, a contrast with its staid image
among many Americans. G.M. sold nearly half a million Buicks here last
year, almost five times the brand’s sales in the United States.
“I was so fascinated by the shape of this car,” said Xu Tianpei, who
bought a Buick Regal at the Yongda dealership in Shanghai for 230,000
renminbi ($34,000), including taxes and insurance. “
Shen Hui, the general manager at the Shanghai Yongda Buick dealership,
said discounted prices were a rarity because of the psychology of the
Chinese car market, which for many years evolved around scarcity.
“People will not buy if the price is discounted because they think it
will fall even further later on,” he said. “But when there is no
discount and tight supply, they will worry that there won’t be any cars
G.M. expects to sell more than three million cars and trucks in China
annually by 2015; from January to June of this year it sold 1.2 million
vehicles, versus 1.08 million in the United States. G.M.s sales in China
in the first half of 2010 were quadruple those of the Ford Motor Company.
G.M. has been a part of the American industrial landscape for more than
a century, but it has been in China only since 1997.
Still, that was early in the development of China’s consumer market for
cars and trucks, which has given G.M. an advantage over rivals that only
began arriving after it became clear how quickly demand was rising.
G.M. has for years been heavily focused on investing in China and other
emerging markets, and it has been introducing some vehicles, like the
Buick LaCrosse and Chevrolet Cruze sedans, in China before the United
States and other countries.
In addition, G.M. has greatly enlarged its engineering and design work
force in China. It is building the country’s largest proving grounds and
broke ground this week on a $250 million advanced technology center to
research batteries and other alternative energy sources.
G.M.’s hourly work force in China has grown to 32,000 people at 10
factories, including its joint ventures, while its American operations
have shrunk to 52,000 hourly employees from a peak of 468,000 in 1979.
Tim Dunne, director of global automotive operations at the research firm
J. D. Power & Associates, said China’s huge population did not guarantee
success for automakers but that G.M. had been done well because of its
focus on meeting consumers’ tastes.
“You’re talking about one of the most competitive markets in the world,”
Mr. Dunne said. “They’ve surpassed my expectations. They marshaled
resources into China and made sure they did it the right way.”
Mr. Wale, the president of G.M. China, admittedly has very different
concerns from his counterparts in Detroit. As the company’s sales were
falling 30 percent in the United States in 2008 and 2009, they were
surging 67 percent in China.
But while rapid growth is the better of the two problems to have, the
consequences of any missteps in China can reverberate throughout G.M.
“If you’re not ready and you miss the market growth, then you miss it
for a long time,” Mr. Wale said.
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