GM has firm footing in Chinese market

By changing the interior, the Holden Statesman becomes the Royaum in China.

General Motors is salving its American wounds in China, where the Buick brand holds top spot in the booming new-car market.

GM's 35 per cent growth in China outstripped market expansion, the brand's goal, according to Troy Clarke, president of GM Asia Pacific.

But GM won't have such an easy job this year as overall growth is expected to slow to 15 per cent.

The rapidly expanding market has attracted plenty of competition. Established brands are already cutting prices to keep customers interested, and VW - ousted from top spot - is planning a raft of new models this year.

Clarke knows GM must think laterally to maintain its success. Given China's determination to develop an export market with home-grown brands, he doesn't rule out some kind of export development partnership as the Chinese industry matures and starts to look beyond its borders.

He may have to hurry. A Chinese brand has already become the first to exhibit in the United States, with Geely showing a four-door sedan, the 7151 CK, at the Detroit Motor Show.

Priced at less than US$10,000 ($14,400), this car will head a sales push into America within the next two years, thanks to an association with EER Isuzu Puerto Rico.

But GM China's managing director, Kevin Wale, isn't worried.

He says, "China won't become a nett exporter soon. It would like an export industry, and some are trying to expand to Malaysia, the States and Eastern Europe, but a lot of work is needed to satisfy internal demand and to establish standards that will meet external requirements."

Richard Giltrap, managing director of New Zealand VW distributor European Motor Distributors, thinks that work is about to bear fruit. "We'll see the first VW out of China within two or three years, and I wouldn't rule out small VWs sourced from China by 2008, depending when they start right-hand-drive production."

What could delay export is the quality of components sourced from local companies.

Wale says, "Our quality outputs are as good as anywhere - we use the same facilities and techniques worldwide and quality matches up to European plants. But it's harder in the local component industry, which doesn't have the depth of technical knowledge to ensure large-scale quality consistency.

"China is still an infant in terms of large-scale infrastructure, including the logistics infrastructure it needs to mature."

No wonder, then, that industry observers say the Geeling car will need to be cheap to sell well.

Meanwhile, overseas brands are still popular in China. Top-selling Buick appeals to Chinese up-and-comers. They comprise a small proportion of the market, but with 1.3 billion people there's still plenty of potential.

Just 14 Chinese for each 1000 owned a car in 2003, compared with New Zealand's 605 and America's 777.

That's why the world's third-largest vehicle market is its fastest-growing. China will outstrip Japan in sales next year, and could pass the US by 2020 to become the world's largest car market.

Wale is enthused by an arena so new that business plans are developed from scratch. "In the US, how you do it is important - the product plan, the distribution plan. But here the 'who', choosing your target, is still being done. The 'what' - setting and evolving strategy - is still being done. 'Who' and 'what' are known elsewhere, but here it's all new."

It's also completely different. Overseas designs are "localised" to suit - the Holden Statesman becomes the Royaum via substantial differences to the interior, for example.

GM's success at localising cars is one reason it has overtaken former market leader VW. But it has also developed a healthy manufacturing base thanks to more than US$2 billion of investment, and a good range of cars across its five brands. That combination should take it to 1.3 million units sold within China by the end of next year.

Add to that GM Daewoo's record sales - with 28.6 per cent growth - and you can see why Asia could be vital to GM's survival. It could also hold a key to expansion in the traditional markets in which it is now suffering.

New Holden NZ managing director Peter Keley says eventually Chinese-built cars will compete on the world market, like Korean vehicles, on price "which will keep price-pressure high".

Meanwhile, GM has a firm foothold in the Chinese market on which to build, while everyone else plays catch-up.