Saturday, November 18, 2006

GM looks to China to fuel rebound

Wednesday, November 08, 2006
GM looks to China to fuel rebound
While it's cutting back in North America, automaker has plans to spend $3B in 2004-2007 in the nation.
Elaine Kurtenbach / Associated Press

SHANGHAI, China -- Government worker Xue Weiqing is just the sort of customer General Motors Corp. is banking on to help power its turnaround.

At 33, Xue is already 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 Xue as he waited 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's closing plants and trimming production in North America, GM is pouring more money into China -- with plans to spend $3 billion in 2004-2007.

It already has five vehicle factories and one engine plant in China, an auto financing venture and is quickly expanding dealerships.

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

In 2005, GM's sales in China rose 35.2 percent year-on-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," he said.

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

In early 2005, 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 units in China in 2005, its first year. This year, third-quarter sales were up 51 percent year-on-year, with the company forecasting full-year sales of more than 100,000.

GM has also 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.

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

The target car buyer is a young professional, 20-35 years old.

"Our goal is to capture them and keep them for life, bring them through the GM family," says Betz.

© Copyright 2006 The Detroit News. All rights reserved.


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