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
As GM 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 U.S.
taxpayers, who would begin shrinking their 61 percent equity stake in the
In the first half of this year, GM’s China sales rose 48.5 percent over the
same period last year, and for the first time ever, the auto maker sold more
vehicles in China than in the United States. Just 13 years after entering
China, GM now says the country accounts for a quarter of its global sales –
blistering growth that even GM did not expect this soon.
“China’s a big piece of the value of the
company,” said Stephen J. Girsky, GM’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 GM is worth $50 billion
to $90 billion, with China accounting for about $15 billion of that total. The
U.S. government converted about $43 billion of aid to GM 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 SAIC
Motor Corp. and other local manufacturers, GM 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 bare bones minivan wildly popular in rural areas, and
the luxurious Cadillacs that can be seen in the wealthy neighbourhoods of
This week, GM announced plans to create a
seventh brand to sell small passenger cars. In the United States, GM is down to
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, GM China was the beacon in the night that GM always had in
its back pocket, and China will be a vital cog in GM’s machine going forward.”
GM 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
While GM’s fast-growing China operations
are helping to offset the auto maker’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, GM earned a first-quarter profit of $1.2 billion in
North America, after losing $3.4 billion the previous quarter, but its U.S.
market share so far this year is down from 2009. Analysts said GM’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 Chinese consumers not having the scepticism about GM 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 GM China. “We don’t carry any baggage,
basically. We get treated for what we deliver.”
GM officials say no U.S. taxpayer money has
been used to expand in China, although a Chinese government stimulus program
that encouraged sales of clean vehicles and helped farmers and other rural
residents buy vehicles has fuelled consumer demand here.
Buick is the company’s star. Favoured by China’s last emperor, Buick is perceived
as sumptuous and stylish, a contrast with its staid image among many Americans.
GM sold nearly half a million Buicks here last year, almost five times the
brand’s U.S. sales.
“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
“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 left.”
GM expects to sell more than 3 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. GM’s sales in
China in the first half of 2010 were quadruple those of the Ford Motor Co.
GM has been a part of the U.S. 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 GM an advantage over rivals that only began
arriving after it became clear how quickly demand was rising.
GM 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, GM 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 centre to research batteries and other alternative energy sources.
GM’s hourly work force in China has grown
to 32,000 people at 10 factories, including its joint ventures, while its U.S.
operations have shrunk to 52,000 hourly employees from a peak of 468,000 in
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 auto makers but that GM had been done well because of its focus on meeting
“You’re talking about one of the most
competitive markets in the world,” Dunne said. “They’ve surpassed my
expectations. They marshalled resources into China and made sure they did it
the right way.”
Wale 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
While rapid growth is the better of the two
problems to have, the consequences of any missteps in China can reverberate
throughout GM worldwide.
“If you’re not ready and you miss the
market growth, then you miss it for a long time,” Wale said.