China to be GM's second largest market this year

Friday June 4, 6:29 pm ET By

MACKINAC ISLAND, Mich., June 4, 2004; Michael Ellis writing for Reuters reported that China will become General Motors Corp.'s second largest market this year, eclipsing Germany in new vehicle sales, the head of the American automaker said on Friday.

In just the last few years, China has emerged to become one of world's largest markets for new car sales, fueling big profits for major automakers such as General Motors.

"It's incredible news. If you go back five or six years ago, it's astounding," GM Chairman and Chief Executive Officer Rick Wagoner told Reuters following a speech to the Detroit Regional Chamber business council here.

Earnings from China have grown quickly despite some fears that growing competition as automakers add new vehicle manufacturing plants there would cut profit margins.

GM officials had previously said that earnings from China could slow, but in the first quarter they exceeded expectations.

"Last year, we sort of implied it might slow down this year, so far it hasn't,"

GM's earnings from its joint venture operations China quadrupled in the first quarter to $162 million, up from $44 million in the first quarter last year.

But GM has been able to cut costs in China due to economies of scale as it grows, and by working with suppliers.

"We've had a lot of success actually taking costs out, material costs in particular, and that's helped hold margins better than people thought," Wagoner said.

In January, GM said it expected Asia-Pacific earnings to grow to a range of $700 million to $800 million this year, up from $577 million last year. In the first quarter alone, GM earned $275 million from the region, mostly from China.

"We're off to a good start," on hitting the target, Wagoner said. "So far that looks pretty good."

GM has expanded aggressively in China, which has helped shore up falling profits in its core North American market, and losses from its European automotive operations.

Last year, GM said it would raise capacity by 50 percent in China to 766,000 units, adding production lines to its main Shanghai plant and another in the southern region of Guangxi.