GM STRATEGY IN CHINA

SHANGHAI — The key to success in China's cut-throat competitive but potentially massive car market may lie in the diameter of a tea jar. General Motors aims to rev up sales at its Shanghai plant by 50 percent this year with a new family car, making 100 engineering changes to the Opel Corsa to turn it into the Buick Sail in hopes it will suit Chinese tastes. From lightening up the upholstery to more back-seat controls, from a unique bumper to cupholders big enough to fit the fat jars that Chinese use to hold their tea, the compact model is tailor-made for Chinese customers, GM executives said this week. "It's an extremely difficult market to be in," said Chris Gubbey, executive vice president of Shanghai GM, a 50-50 joint venture with Shanghai Automotive Industry Corp (SAIC). "Every manufacturer is trying to get in with a different product. It doesn't seem you go a day without opening a newspaper and getting another announcement of another JV forming," Gubbey told foreign reporters. China is one of the world's fastest growing auto markets and could rival the current leader, the United States, by 2025, said Phil Murtaugh, chairman and chief executive officer of GM China. Some 2.1 million vehicles were sold in 2000, of which 640,000 were passenger cars. GM expects the China auto market to double to four million vehicles by 2010. In the driver's seat is the burgeoning middle class, as rising incomes allow more Chinese to leave rusty bicycles at home and shell out for shiny new compacts. Volkswagen has long been the market leader, with analysts putting its share of the overall China market at around 50 percent. But GM hopes to muscle in with what it calls the first modern compact car for the China market. The Sail is priced at 100,000-125,000 yuan ($12,000-15,100) and was launched in June. GM is not alone. Volkswagen, Toyota with Tianjin Xiali, and Suzuki with Chongqing Changan, have all launched or are planning new small cars. Murtaugh said private car buying typically kicks off when per capita GDP hits $4,000 and noted a handful of major Chinese cities were already at that level. The four key China markets are Shanghai, Guangzhou, Beijing and Chongqing. "Today, private buyers are in the minority, but by the end of this decade we believe private buyers will vastly outnumber the commercial," Murtaugh said. "The growth of the middle class has led to a battle to be first in the family car segment, which are vehicles priced around 100,000 yuan. It is a brutally competitive market today." Safety and backseat comfort were essential for winning Chinese hearts, Gabbey said. Shanghai GM's larger and more expensive cars usually target the chauffeur-driven. The most popular colour for the pricier Buick sedan is black and it is often seen speeding Shanghai officials around the city behind darkened windows and siren-screaming motorcades. Sixty percent of Shanghai GM's customers are institutions, government or state-owned enterprises. The firm says it holds a 16 percent market share of the upper medium segment in China and within that, a 56% share of the V6 engine market. Gubbey said the Sail is the first compact to hit China with modern safety features such as dual airbags and antilock brakes. Shanghai GM said it has pre-sold 16,000 Sails, of which nine percent was at the top price end. It expects to sell 35,000 of them this year, representing nearly half of the plant's forecast sales of 60,000-65,000, up from 30,000 in 2000. Murtaugh said the toughest competition would come from domestic producers. Under a Sino-U.S. trade pact, even six years after China joins the World Trade Organisation, import tariffs will still be at 25%, albeit down from 60-80% now. China has 119 automakers, although the top 25 account for 93% of production. GM's partner SAIC is one of the big three producers, with 65,000 employees and 33 joint ventures. It rolled out 600,000 cars in 2000. In comparison, GM has 3,500 employees in China and three joint ventures. Shanghai GM will reach full capacity in two years, executives say. Both SAIC and GM played down concerns that their cooperation would eventually turn into competition. "The car industry is now global. The land for Shanghai GM is rented for 50 years," SAIC president Hu Maoyuan said. "This is a lifelong marriage."