- SPECIAL REPORTS
For the past eight decades, General Motors Corp. (GM, Detroit) has ruled as the largest automaker in the world. The 100-year old, $181 billion company has lost market share on its home turf recently, but it still ranks as a global powerhouse. In fact, 52 percent of the 9.4 million vehicles that GM assembled in 2007 were sold outside of North America.
China accounts for a large chunk of that activity, because business is booming for GM in Beijing, Shanghai, Shenzhen and many other parts of the country. Last year, the automaker and its joint-venture partners sold more than 1 million vehicles in China for the first time, an 18 percent increase over 2006. It was the third consecutive year that GM ranked as the market leader among global automakers in mainland China. And, if early 2008 sales figures are any indication, the company is on track to break last year’s record.
Sales of domestically produced GM brand passenger vehicles rose 17 percent in 2007 to 479,427 units vs. 452,131 units in 2006. During the same time period, the automaker’s sales in the United States slipped 6 percent.
General Motors’ operations in China are among the most profitable in the company’s vast production portfolio, which includes assembly plants on six continents. But, GM is not about to rest on its laurels and bask in its recent string of success. The automaker plans to forge ahead and take advantage of future growth opportunities in China.
When it comes to doing business in China, GM is not exactly a new kid on the block. The company has had a presence in China for almost 100 years. Indeed, some of its vehicles started to appear in the country in 1912, just four years after the automaker was established 7,000 miles away in Detroit. In 1929, GM opened a sales office in Shanghai to handle brisk business. At the time, Buick was firmly established as the most popular large car brand in China.
A 1930 Buick ad boasted that “one out of every six cars [in China] is a Buick” and that “Buick owners are mostly the leading men in China.” China’s last emperor, Pu Yi, owned a Buick in the 1920s. Other Chinese leaders who used GM vehicles included Sun Yatsen and Zhou En-Lai.
In 1992, GM returned to China after an absence of more than 50 years when it joined with Jinbei Automotive Co. to establish a joint-venture called Jinbei GM Automotive Co. Three years later, GM established a 50-50 joint-venture with Shanghai Automotive Industry Corp (SAIC).
The first Buick made in China, a Regal sedan, rolled off the assembly line in December 1998. In 2001, Shanghai GM launched the Buick Sail, the first modern family car built in China. Today, the company operates assembly plants in three Chinese cities. It claims to have China’s first flexible manufacturing system, which allows the production of multiple vehicles on a single assembly line.
“General Motors did a very good job of building its relationship with SAIC, one of the biggest and most influential automotive groups in China,” says John Bonnell, a partner at Automotive Resources Asia Ltd. (Bangkok, Thailand). “Its partnership with SAIC includes joint-investments in Korea and also the Chinese mini-truck maker Wuling.
“This provides good relationships with government and the model approval process,” adds Bonnell. “It also provides access to a strong supply base, and a pool of experienced automotive managers from which to draw.”
During the last 5 years, GM’s market share in China has risen from 8 percent to 15 percent. At the same time, its production capacity has jumped from 530,000 to 1.4 million units a year. Today, GM has more than 400 dealers in China and operates four assembly plants with its joint-venture partners.
In addition to its flagship joint-venture with SAIC, GM is involved in a mini-vehicle joint-venture with SAIC and Wuling Motors (Liuzhou, China), which achieved a 20 percent growth in 2007. The 5-year-old joint venture sold 552,788 vehicles in 2007, accounting for a 43 percent share of the mini vehicle segment in China.
Popular BrandsGeneral Motors currently has one of the largest and most diverse product portfolios in China, with more than 50 different vehicle offerings. It has focused its marketing efforts on brand building, especially with its traditional nameplates such as Buick, Cadillac and Chevrolet.
“I think GM benefits from its status as the biggest vehicle manufacturer in the world,” says Bonnell. “This fact plays well with a Chinese mindset that likes things big. The company has done well building its brand recognition and image among Chinese buyers.”
Today, China is Buick’s top market. Buick is Shanghai GM’s most popular brand, with domestic sales of 332,115 units in 2007.
For the last few years, GM has sold more Buicks in China than in the United States, where the brand originated more than 100 years ago. “Buick is viewed as an inspirational brand in China,” says Erich Merkle, vice president of forecasting at IRN Inc. (Grand Rapids, MI). “It’s considered to be quite a status symbol.”
The Buick Excelle, launched 5 years ago, ranks first in its class of mid-level car models. More than 176,000 vehicles were sold in 2006 and more than 181,000 in 2007.
Last year, GM wowed attendees at the Shanghai auto show by unveiling a Buick Riviera gullwing coupe. The concept car was developed with major design input by the Pan Asia Technical Automotive Center (PATAC, Shanghai), a design and engineering joint venture between GM and SAIC.
At the recent Beijing Motor Show, GM repeated the feat and unveiled the Buick Invicta concept sedan. Like the Riviera, the Invicta derives its name from a Buick sedan that was built in the United States during the 1960s.
George Yang, a GM China spokesman, tells ASSEMBLY magazine that “this [is] the strongest direction yet in the design of future Buick vehicles in China.” The four-door Invicta was co-developed by engineers working at the company’s design centers in Detroit and Shanghai using virtual reality technology. It pays homage to classic Buick sedans of the 1940s, 1950s and 1960s, with a sweeping design running the length of the car.
Later this year, GM will begin shipping the Buick Enclave SUV, a popular vehicle in the U.S., to China. In 2009, Shanghai GM plans to replace the Buick Excelle with the Buick Skylark. It will be based on GM’s Delta II global small-car architecture.
General Motors is still considering exporting vehicles to the United States. However, Bonnell says he doesn’t “think there will be meaningful exports to the U.S. in the foreseeable future.” The Excelle or Skylark might be exported starting in 2010.
Other GM vehicles sold in China range from the Chevy Aveo subcompact sedan to the Cadillac Escalade sport utility vehicle. The company also markets a few vehicles under the Opel and Saab nameplates.
In 2007, sales of Chevrolet products in China soared 21 percent to 172,182 units. Last year, the Cadillac luxury brand, which was only introduced in China in 2004, had domestic sales growth of 148 percent to 7,022 units.
“Despite growing competition across the board, demand remained robust for our established products, such as the Chevrolet Lova,” says Kevin Wale, GM China group president and managing director. “Several of our new products, such as the Cadillac SLS and the Chevrolet Epica, also got off to a good start.”
Sales in the first three months of 2008 were up 14 percent vs. the same period last year. The top-3 selling GM cars are currently the Excelle, the Lova and the Epica. However, there are no immediate plans to launch the Chevrolet Malibu, a popular sedan in the U.S., in China.
Product DevelopmentMany of the vehicles that GM sells in China are based on models created by Daewoo, its South Korean subsidiary. Some vehicles are imported; others are assembled in China from kits that are shipped from GM plants in South Korea. For instance, the popular Buick Excelle is based on a Daewoo design, while the Daewoo Matiz is rebadged in China as the Wuling Spark.
“I understand that there may be more built-up units imported into China in the future,” says Bonnell. However, the goal is to eventually design and build as many cars in China as possible. For instance, Shanghai GM recently began using Chinese-built V6 engines for the Chevrolet Equinox. As the market grows larger, Bonnell believes it will demand more vehicles designed and built exclusively for China.
“To stay close to the local market, GM has a longstanding strategy of designing, engineering and manufacturing vehicles in the markets in which they are sold,” Yang points out. “GM continues to set up and grow engineering and design centers, such as PATAC, around the world and link those centers into a common global organization. Our strategy is to use common global design, engineering and manufacturing systems and processes to create cars and trucks that meet the needs of the local marketplace.”
China is becoming a major player in GM’s global R&D efforts. In fact, the automaker recently established an advanced manufacturing processes collaborative research lab in Shanghai, which will focus on manufacturing technology and lightweight materials processing.
The company also created the GM Center for Advanced Science and Research, which is part of a new $250 million campus in Shanghai. The center will carry out research projects in cooperation with the government, industry partners and academic institutions.
Most of the GM vehicles being developed in China are similar to those designed at the company’s other design centers in Detroit and Russelsheim, Germany. “There are some slight differences in design between other markets and what is on offer in China,” says Bonnell. “The differences are in the detail, rather than a complete departure from designs found in other markets.” For instance, when GM launched the mid-sized Buick LaCrosse sedan in China two years ago, the Chinese version was a little more upscale than its American counterpart.
“Basically, Chinese consumers want the same thing all customers around the world want–good value for their investment, safe and reliable vehicles, good design and styles,” explains Yang. “From a more detailed level, their taste for features are different from other markets, such as horn use, rear amenities and electric windows.”
However, the Chinese market does have some unique attributes, such as little touches inside and outside the vehicle. “China changes could include such things as a more durable horn for long life in heavy use, front fascia to accommodate license plates, and rear cigarette lighters,” says Yang. “[Chinese consumers] are among the most critical customers worldwide in their expectations of interior quality, fit and finish.” They are also demanding when it comes to noise, vibration and harshness.
There are also some slights changes under the hood. Just like in the U.S., gasoline engines are predominant. “[However], the engines [used in China] are smaller than what [consumers] are used to in North America,” notes Bonnell. “The top-selling Buick Excelle comes with a 1.6 or 1.8 liter four-cylinder engine, with the 1.6 liter outselling the 1.8 liter three-to-one.”
In China, the Buick LaCrosse comes equipped with a 2.4 or 3.0 liter V6 engine. The 2.4 outsells the 3.0 two-to-one. By comparison, the LaCrosse sedans sold in the United States are equipped with 3.6 or 3.8 liter V6 engines and 5.3 liter V8 engines.
Green TechnologyGeneral Motors is pouring billions of dollars into R&D efforts around the world to create a new generation of environmentally friendly vehicles. It recently unveiled an ambitious collaborative strategy to support the Chinese government’s pursuit of energy-efficient transportation.
In addition to the GM Center for Advanced Science and Research initiative in Shanghai, the company has set up the China Automotive Energy Research Center at Tsinghua University to develop a comprehensive and integrated automotive energy strategy for China.
Shanghai GM also recently unveiled an environmental initiative called Drive to Green. According to Ding Lei, president, the green strategy is part of the company’s support of the sustainable development of China’s automotive industry and the nation’s move toward creating an energy-efficient and environmentally friendly society. He says the goal is to apply technical innovation to provide China’s vehicle buyers with products that offer better performance, consume less fuel and generate lower emissions than their predecessors.
Green products represent a key element of the Drive to Green strategy. Starting this year, all vehicles manufactured by Shanghai GM will meet China’s Phase IV emission standard, with new models being capable of meeting emission standards up to the Phase V standard. Under that plan, the automaker claims that it will introduce four green products in 2008. One of those will be a locally manufactured hybrid that will be introduced this summer before the Olympics begin in Beijing.
Between 2009 and 2012, Shanghai GM will begin offering 11 engines that offer better fuel economy than its current engines. The company also plans to introduce GM’s E-Flex drive system and fuel cell E-Flex electric drive vehicle in China after 2010 to put it on the path toward its ultimate goal of zero fuel consumption and zero emissions.
The Buick LaCrosse Eco-Hybrid is Shanghai GM’s initial green product in 2008. “It is the first mainstream hybrid model in China’s upper-medium vehicle segment with volume production,” claims Lei. The vehicle can achieve fuel economy of 8.3 liters per 100 kilometers, compared with fuel economy of 9.8 liters per 100 kilometers for the non-hybrid version.
Shanghai GM also plans to unveil three new engines in 2008, including the 1.2-liter S-TEC efficiency class-leading engine and the HFV6 3.6-liter SIDI dual-mode direct-injection engine. “The S-TEC engine generates 52.2 kW/l, which is the highest in its category, and achieves fuel consumption of 6 liters per 100 kilometers, which is the lowest among engines with the same displacement,” explains Lei.
The SIDI dual-mode direct-injection engine enhances output 15 percent and torque 8 percent compared with the previous version of the engine. In addition, there is a 3 percent improvement in fuel consumption, while hydrocarbon emissions in cold starting can be reduced by up to 25 percent.
According to Lei, Shanghai GM will later launch another, as yet unnamed, vehicle with an advanced two-mode hybrid system. “The engine in that vehicle will get 50 percent better fuel economy than a conventional internal combustion engine without sacrificing performance,” he claims.
Another important component of the Drive to Green strategy is environmentally friendly factories that promote energy efficiency and reduce emissions. General Motors currently operates state-of-the art assembly lines in Jinqiao (Shanghai), Dong Yue (Yantai) and Norsom (Shenyang).
In line with its commitment to green manufacturing, Lei claims that Shanghai GM has already made considerable achievements in environmental protection after years of continuous investment, technical innovation and strengthened focus on manufacturing. For instance, it is the only automaker in China that has been recognized as a “State Environmentally Friendly Company.”
Shanghai GM addresses also recycling throughout the production process. By 2012, Lei claims that up to 95 percent of materials and energy used during the parts design and vehicle manufacturing processes may be able to be recycled, which would surpass Chinese industry requirements.
Within four years, Lei says Shanghai GM’s three manufacturing bases will have reduced coal consumption per car by 35 percent compared to 2007 levels to 0.31 tons. The company has also set targets for decreasing average displacement of waste water per car by 21 percent and doubling the quantity of reclaimed water by 2012, while saving about 400,000 tons of water over the next five years.
The recycling rate of industrial waste is expected to reach 97 percent, an increase of 15 percent from the present time. Lei says these initiatives will help address environmental protection issues that have arisen because of the automaker’s rapid growth in recent years.
“Our goal is to fully leverage our global resources in China, with China and for China in order to contribute to the sustainable development of the local automotive industry,” explains Wale. “By working together, we are confident that we can find solutions that will improve energy security, lead to a cleaner environment and support China’s long-term growth needs.”
Future PlansThe future looks bright for GM in China, where market projections indicate that 350 million vehicles will be assembled over the next 20 years. “To keep up with demand, we plan to add to what is already the largest product lineup with the roll out of additional models,” says Wale. “At the same time, we will continue to strengthen our investment in new facilities and technology.”
According to forecasters at CSM Worldwide (Northville, MI), GM’s presence in China is expected to continue growing well into the next decade. However, it may not be as dramatic as the past few years, because the local economy is slowing due to tighter monetary policies. Analysts at CSM predict that GM will sell more than 1.1 million vehicles in 2010. That figure will surpass 1.3 million by 2012.
“We see great potential to increase sales to the developing areas in China, where the fastest growth is occurring,” says Wale. “The desire for mobility is just as strong in those areas and there is an increasing range of products that can meet their needs.
“We sell a lot of Wuling products designed to cater to the lower income levels,” adds Wale. “Wuling provide excellent value and flexibility for consumers in those segments. And, we have a full range of Chevrolet products that can address many of the requirements of the developing market.
“We introduced GMAC three years ago and it has been an outstanding success,” Wale points out. “We have a seen a consistent increase in the amount of customers using retail financing, particularly with Chevrolet.”
“Looking forward, GM will continue to provide tailor-made products to meet the rapid growth in market demand and lead the development of energy-efficient transportation in the country,” says Yang. “We have an exciting portfolio of vehicles and fuel-saving technologies to introduce here in the next two to three years.
“Given huge potentials of the Chinese automotive market, GM will continue to invest in adding new facilities in China, including engine and vehicle assembly plants in the country. We [intend] to invest about $1 billion a year into the future to support this growth.”
Last year, GM and SAIC signed an agreement for an eighth joint-venture in China, Shanghai OnStar Telematics Co. Ltd., which will provide a range of in-vehicle safety, security and communication services to Shanghai GM customers in China.
General Motors has also announced that it is building China’s largest and most comprehensive vehicle proving ground in Guangde (Anhui). The 20,000 square meter facility will be capable of testing up to 140 vehicles simultaneously under a full range of real-world situations.
In addition, SAIC-GM-Wuling recently opened a new commercial vehicle assembly plant in Quingdao and a new engine plant in Liuzhou, each with an annual capacity of 300,000 units. The plants will be used to produce the new Wuling Hong Tu minivan.
The road ahead for Shanghai GM may not be as smooth as in the past. “Chief among GMs challenges is putting in the capacity that is right for the market,” says Bonnell. “This means they will need the discipline to chase only the sales that can deliver a profitable margin, and avoid the temptation to chase market share.
“Competition is severe, with more than 50 companies each taking a piece of the market,” warns Bonnell. “Price-cutting is a norm for the market, which makes it difficult to earn a profit. Putting in the capacity to chase the unprofitable sales endangers the profitability of the overall enterprise. Profitability has changed, as margins are squeezed by competition.”
According to Wale, the biggest challenge facing General Motors in China down the road will be “the continued, unbelievably rapid growth in market demand. As growth continues, we’re seeing a need to introduce an even wider range of products to meet the diverse market needs.”
Some observers believe that GM may increase its 34 percent share in SAIC-GM-Wuling some time in the near future. That type of strategic initiative would allow the automaker to produce a line of cheap minicars that would compete head-to-head with the Tata Nano, which was recently unveiled in India.
Engineers are currently developing a next-generation Spark that is based on GM’s global minicar platform. It is expected to go into production in China in late 2009.
During the last decade, Shanghai GM has imported approximately $3.5 billion worth of vehicles, components and production equipment from North America. But, the automaker will be buying more and more domestic parts in the future.
Bo Andersson, GM group vice president for global purchasing and supply chain, claims that 90 percent of the parts in a locally assembled car are already sourced in China. Approximately 60 percent are from multinational firms, while the remainder are supplied by Chinese manufacturers.
Andersson says GM currently purchases approximately 20 million parts from 190 Chinese suppliers every month. In the future, he expects to see more local sourcing, especially for components such as air conditioning systems, brake parts, chassis parts and steering parts.
“We’re very excited about GM’s 100-year anniversary and we’re looking forward to the start of our next century,” concludes Wale. “We see a significant change in market dynamics, with China playing a very large role in the development of the global industry in future years. Over the next 15 years, we expect China to become the largest global market, and therefore, a key influencing factor in the industry.”
Worlds of Wonder
The GM pavilion was a popular attraction 75 years ago at the Century of Progress exhibition in Chicago, where one of the highlights was an assembly line that built Chevrolet sedans. The company also built large pavilions for fairs held in New York City in 1939 and 1964. Both of those exhibits featured elaborate Futurama displays that provided visitors with a peek into the future of transportation.
When Expo 2010 opens along the banks of the Huangpu River on May 1, 2010, GM will continue that heritage. Shanghai GM will be the exclusive automotive partner of the event. The company is building a large corporate pavilion at the world’s fair, whose theme is Better City, Better Life. More than 70 million people are expected to attend the 6-month-long exhibition.
“It offers an ideal platform for sharing GM’s solutions for sustainable transportation and promoting the vehicles of tomorrow,” says George Yang, a GM China spokesman. “We’ll talk more about our plans for Expo as we get closer to 2010, but we can certainly indicate that they are significant.”