GM Decisions For China Sales

BEIJING November 19, 2003; Phelim Kyne writing for Dow Jones reported that General Motors Corp. of the U.S. is betting on strong growth in both China's luxury car market segment and an underdeveloped minicar market for the success of domestically-produced Cadillac and Spark models, a company executive said recently.

GM's decision to add upper-market Cadillac models to the company's China-made brand lineup is aimed at tapping the soaring demand for luxury vehicles, GM China Group's chief executive Phil Murtaugh told Dow Jones Newswires.

"The luxury segment is booming in China," Murtaugh said. "It's small on a comparative basis, but it's an opportunity (so) we just thought that with the Cadillac portfolio that we have now, we think we have an extremely competitive product."

General Motors announced earlier this month that it will add Cadillacs to its current China lineup of Buick and Chevrolet brands by expanding manufacturing capacity at its joint-venture facility with Shanghai Automotive Industry Corp. ( Group), or SAIC, by 50%.

Capacity at the plant in the eastern coastal city of Shanghai will increase to 300,000 units by the end of 2005, but GM hasn't confirmed when Cadillac production will actually begin. GM currently claims an 8.2% share of China's car market, compared to about 33% for market leader Volkswagen AG of Germany.

GM's move to bring the Cadillac to China indicates how foreign car manufacturers and their joint venture partners are scrambling to satisfy a new generation of urban Chinese consumers whose rising disposable income levels have spurred a passenger-car sales boom.

China recorded a 69% year-on-year rise increase in passenger car sales to 1.34 million units in the first nine months of 2003, China Association of Automobile Manufacturers statistics indicate. GM's China sales reached 267,395 units in the same period, up from the 264,371 units sold in full-year 2002.

Minicar Market Demand Uncertain

That consumer demand has been boosted by a range of new auto loan products offered by China's state bank sector. Accessibility to GM products will be further widened by an auto financing joint venture with SAIC that Murtaugh hopes will begin operations by the second quarter of 2004.

But the bulk of those rising car sales have to date been focused on small sedan models including GM's Sail and the VW Polo.

Murtaugh said that proven track record of sales preference made GM's decision to introduce its Spark minicar "a crap shoot" in terms of consumer popularity.

"To be honest, there's a lot of debate for what the growth prospects for minis are," he said. "Some people believe it will be the next high-growth segment, other people believe it will always stay a relatively small segment."

China's first domestically-produced Spark models were due to roll off the assembly line of a joint venture with SAIC and Wuling Automobile Co. in Guangxi province last week.

The Spark has already attracted public attention through an intellectual property right dispute fueled by allegations that another China-made vehicle, the QQ, closely resembles the Spark. The QQ is produced by SAIC Chery Automobile Co.

"There have been persistent rumors that (the QQ) looks like the Spark and we're in the process of investigating it," Murtaugh told reporters Tuesday, without elaborating.

Executives at SAIC Chery have denied they copied GM designs in building their QQ model.

GM hopes the Spark's launch will help spur sales in the currently moribund domestic minicar market. Murtaugh said GM will price the Spark at around $8000 per unit.

"One of the reasons it's a small segment is there are no good minis in China ( and) most of the minis sold are very poor quality, very old technology vehicles, " he said. "We think that with the introduction of a modern, high quality mini, that market has room to grow."