GM's China Chief Resigns as JV Quakes

SHANGHAI/DETROIT March 30, Ben Blanchard writing for Reuters reported that General Motors Corp. on Wednesday said the head of its operations in China was stepping down, as earnings from the company's second-largest market slow dramatically.

No specific explanation was given for the sudden departure of nine-year China veteran Phil Murtaugh, who helped make China a market seen as a lone bright spot for the world's largest automaker.

GM's chief spokesman Tom Kowaleski said Murtaugh, who joined GM in 1973, was leaving the company for personal reasons.

Kowaleski denied that the resignation had anything to do with possible troubles in GM's joint venture with Shanghai Automotive Industry Corp. But it comes as Shanghai Automotive has been moving to set up independent operations, according to Graeme Maxton of Autopolis, an automotive consultancy in Britain.

The company is also planning to launch its own vehicle brand and intends to export 50,000 cars annually from China by 2007, Maxton said.

Murtaugh was instrumental in forging GM's partnership with Shanghai Automotive.

"The Chinese have long had plans to develop their own auto sector," said Maxton, adding that Shanghai Automotive was one of various up-and-coming "national champions."

Murtaugh has been chairman and managing director of the General Motors China Group, based in Shanghai, since July 2000. He had been part of GM's China operations since 1996 and was well regarded for having built up GM's market share to about 10 percent, chipping away annually at Volkswagen's once-commanding lead.

His departure comes as China's auto market, the world's third largest, has been slipping into a price war, decelerating sales and swelling unsold vehicle inventories.

Sales began decelerating in mid-2004 after Beijing imposed credit curbs to slow its racing economy, and have not recovered since. Vehicle sales fell 13 percent in February.

That has added to the overall woes at GM, which has been losing money in Europe for years and warned earlier this month that its 2005 earnings will be as much as 80 percent below a previous forecast, due to slumping North American auto sales.

In its key U.S. market, GM's once dominant position has dropped to a less than 25 percent share on a steady loss to foreign automakers.

GM's warning spurred Standard & Poor's to caution it could downgrade the Detroit giant's debt to "junk" status at any time, and sent its shares down to a 12-1/2-year low.

'NO SAVIOR'

GM's portion of its joint venture profits in China totaled $417 million last year, up from $414 million in 2003. In January it forecast net income from its Asia Pacific operations, where China accounts for the bulk of profits, of just $600 million this year, down from $729 million in 2004.

Some analysts now see that forecast as overly optimistic, however.

GM's net earnings from China in the fourth quarter plunged 68 percent to just $33 million -- accounting for some 5 percent of total net earnings of $630 million, down dramatically from about a fifth in the third quarter.

Profit margins on vehicles sold in China have plunged to about 3 percent or 4 percent, from a booming high of as much 25 percent just three years ago, according to Maxton. that has hurt GM and everyone else in the increasingly competitive marketplace.

"They put a great deal of hope into China," Maxton said of GM. "But if that was to be their savior, to make up for what's happening in the U.S. and Europe, it ain't going to do that."