By studying local consumers, developing vehicles to suit local needs, and benefiting from the country’s economic stimulus incentives, GM has reaped success in China.One of the world’s largest automakers, General Motors Co. (GM) and its partners produce cars and trucks in 30 countries under 12 major brands. With its global headquarters in Detroit, Michigan, the company employs roughly 202,000 people in all major regions of the world and conducts business in more than 120 countries. GM’s largest national market is China, followed by the United States. The company has been the sales leader among global automakers in China for six consecutive years.
David S. Chen, vice president of GM China Group, recently discussed the company’s China operations with CBR Editor Paula M. Miller. Chen is responsible for GM’s government relations, public policy, and corporate social responsibility efforts in China. Currently based in Beijing, he has been working for GM in China since 1994, when he helped launch GM’s first China joint venture (JV) in Shanghai. He began working for GM in Warren, Michigan, in 1984.
When and where did GM first enter China?
Chen: GM first entered China in the 1920s. There was a Chevrolet dealer in Shanghai during that time. Records also show that the father of Chinese democracy, Sun Yatsen; the first premier of China, Zhou Enlai; and the last emperor, Puyi, owned Buicks. If you’re wondering why Buicks are doing so well in China, the historical linkage may help. I’ve heard that in the 1930s, one out of every six cars in China was a Buick. GM stopped operating in China in 1949 and restarted in late 1993 or early 1994 when we began negotiating our first JV, Shanghai GM, with our partner Shanghai Automotive Industry Corp. (SAIC).
How has GM expanded in China over the years—in terms of size, products, and strategy?
Chen: In 1994, we started with five people working in two rented rooms at a Holiday Inn in Shanghai. We then rented half a floor of that building and eventually extended to two floors. Today, GM has more than 40,000 employees in nine cities in China. We launched our first vehicle that was manufactured in China, the Buick Century [similar to the Buick Regal in the United States], at the end of 1998 and started selling it in 1999. Last year, GM’s total China production and sales reached 2.3 million vehicles—nearly a 29 percent increase from the 1.8 million vehicles in 2009.
When we launched the Buick Century in China, the launch was only six months behind its debut in the United States. The vehicles had state-of-the-art technology and were breathing a breath of fresh air into China. In contrast, some of the European manufacturers were releasing vehicles that were at least 10 years old when they reached the China market. At the time, we promised China that we would launch one new car per year.
In 2000, we released the Buick GL8 minivan, which is similar to a Chevrolet Lumina or Oldsmobile Silhouette in the United States, and the Buick Sail, which was based on the smaller Corsica car. The Sail was the first car that targeted families and was priced under ¥100,000 ($15,200). At the time, people thought we were crazy to release a family car for the China market when 90 percent of China sales were coming from government purchases. But the trend has reversed now—most vehicles are for private use. We weathered skepticism for launching a family car in 2000, but we were lucky—we were right.
In fact, we are a company of many firsts in China. In 1997, we set up the first technical center JV in China—the Pan Asia Technical Automotive Center (PATAC)—between GM and SAIC. It is now one of our core advantages. We were also the first to build automatic transmissions in China when almost no one wanted them. Today more than half of Chinese consumers prefer automatic transmission.
What are GM’s current investment structures in China?
Chen: After setting up Shanghai GM in 1994, we acquired the second JV, SAIC-GM-Wuling Automobile Co. Ltd. (SGMW), in 2002. [The JV is between GM China, SAIC, and Liuzhou Wuling Motors Co., Ltd., and is based in Liuzhou, Guangxi.] I was pleased that eight or nine years ago it was the fourth-largest mini commercial vehicle producer in China, even though it only sold 80,000 to 100,000 units that year. Last year, however, it produced and sold more than 1.2 million units, and it has been the top mini commercial vehicle manufacturer for five years.
After the second JV, there was a sequence of mergers and acquisitions led by Shanghai GM. A few years after, we set up a plant with SAIC in Yantai, Shandong, which predominately builds Chevy vehicles now. We also expanded into northern China, setting up a plant in Shenyang, Liaoning, where we build Buick GL8 minivans and Chevrolet Cruze compact sedans. In 2009, we expanded further to build commercial light-duty trucks with First Auto Works (FAW) [China FAW Group Corp].
In November 2010, GM became the first global automaker in China to sell 2 million vehicles in a single year. How did sales by GM and its JVs in China increase in 2010 over the last few years?
Chen: When the global economy ”stepped on the breaks” in 2008, it impacted China as well. In late 2008, we could see a significant weakening of the auto market. But in part due to China’s timely economic stimulus incentives, which were simple but effective, 2009 and 2010 were great years for us. The incentives included consumption-tax rebates for small-engine cars, rebates for rural car-buyers, and incentives to exchange old vehicles for newer, more energy-efficient models. Those three major stimulus policies were in place in January 2009, and they were wonderful for China. Total auto industry sales in China rose over 40 percent that year. GM sales in China rose about 67 percent, so that we produced and sold 1.8 million units. Last year the incentive policies were still in effect, and we sold 2.3 million units—roughly a 29 percent increase over 2009.
This year will be challenging—mainly because the stimulus package has ended. [GM has since reported that its January 2011 China sales hit an all-time monthly high of more than 268,000 vehicles, up 22.3 percent over January 2010. Its February 2011 sales reached more than 184,000 vehicles, also setting a new record for the month.]
What are GM’s best-selling brands and models in China?
Chen: Last year, of the 2.3 million GM vehicles sold in China—Shanghai GM sold more than 1 million passenger vehicles. Of the remaining vehicles, SGMW sold about 1.2 million mini-commercial vehicles, and FAW-GM sold about 88,000 trucks.
Shanghai GM produces three well-known brands: Buick, Cadillac, and Chevrolet. Buick is by far the most popular in China—we sold about 550,000 Buicks last year. Though it was launched six or seven years later than the Buick, Chevy is catching up fast; last year we sold 543,000 units. Cadillac is the newcomer facing fierce competition against well-known brands such as BMW and Mercedes. But after selling 17,000 units last year—up 139 percent over 2009—Cadillac is also doing well. Cadillac’s SRX luxury utility vehicle and new SLS luxury business sedan are the most popular. As its first- and second-most popular vehicles, SAIC-GM-Wuling sold 668,000 Wuling Sunshine and 335,000 Wuling Rong Guang minivans last year.
How have GM’s business strategies and types of vehicles manufactured or sold in China changed over the years? How has GM adapted certain vehicles first released in other markets for the China market?
Chen: It takes about $1 billion to develop a car. Many of the first cars sold in China had small volumes per year—50,000 vehicles or less. With that kind of economy of scale, most foreign auto companies brought their cars that were popular in other markets over to China. The European and Japanese auto manufacturers in particular were successful—their designs and product features were appreciated and understood by the Chinese consumer.
GM had an adaptive strategy early on. We brought our popular models over from the United States and tailored them for the China market. When we brought the first Buick Century to China in 1998, we made more than 600 changes. Those alterations weren’t just to cope with regulatory changes, such as oil and lamp design requirements that were unique to China, they were also changes to adapt a US car to Chinese consumer needs. For example, one of the key changes we made was to make the second-row leg space and seating area more roomy. This is because in China at the time, the owner, who was not the driver, usually sat in the back seat. Now, most owners drive their own car.
Essentially, we run many clinics to understand consumers before bringing a car over. We also look at who the major competitors are and try to understand what will make a winning product. Then we search the GM product portfolio, pick a car as a donor platform, and have PATAC meet the Chinese market requirements. We run clinics from the car’s development all the way to its pricing to determine if we are off target. Our more successful products today are co-developed by GM global design and PATAC. For example, the Chevrolet New Sail, which is 100 percent developed by Chinese engineering, and the GL8 minivan have both sold well.
One big challenge in China is fuel efficiency—and how to adapt US technology to compete with European and Japanese models that are known to have fuel-efficient engines. We introduced the first six-speed automatic transmission in China, which is important because the more speed you have, the more fuel efficiency you have. Also, last year we made two significant cooperative agreements with SAIC—one to develop small engines and one to develop advanced double-clutch transmissions. In addition, we collaborated with partners to develop China-relevant electric vehicles.
What are some of the top auto-related issues you see in China?
Chen: The China auto industry produced 18 million vehicles last year—the highest annual volume in any country in history. For comparison, auto manufacturers in the United States produced 17 million units a year in the early 2000s.
With this volume, China is facing challenges in four main areas: energy, environment, safety, and congestion. In terms of energy—more than 50 percent of China’s oil is imported, and in the last five years the country’s greatest increase in oil use was from transportation. The huge concern is how China will sustain an auto industry when roughly 96 percent of its cars may run on gasoline—and many other industries consume energy as well. In terms of the environment, although China has made major accomplishments reducing auto emissions in the past 10-20 years, it still has many buses and trucks with old technologies. In many major cities, one-third of air pollutants are auto related. Concerning safety, although China has far fewer cars on the street—probably one-fifth to one-sixth of what’s in the US—and far fewer auto-related accidents than in the US, China has 10 or 12 times more auto-related fatalities than in America. This is because most people that are hurt in car accidents in China are pedestrians. Finally, many cities are suffering from congestion. This January, Beijing issued a new policy to limit issuance of new car license plates to 240,000 plates a year. Last year, 700,000 new cars were sold in Beijing. Shanghai, which has significantly fewer cars on the road than Beijing, has auctioned plates for a while. Prices can top $5,000 per plate.
What are some ways that GM can help China with these problems? How does GM plan to help create “sustainable mobility,” and what are some of the new-energy vehicles that GM has released or plans to release in the near future?
Chen: We are developing solutions and products to address those four challenges.
GM was the only auto sponsor for the 2010 Shanghai World Expo. In fact, the SAIC-GM Pavilion, whose theme was “Drive to 2030,” was the most visited corporate pavilion. It featured a 3D movie about the future of urban mobility that centered around GM’s EN-V [Electric Networked-Vehicle] concept car. At the expo, we introduced the Chevrolet Equinox Fuel Cell electric vehicle, which addresses the difficulty of charging regular batteries by using liquefied or gasified hydrogen that generates electricity as it consumes hydrogen. We also demonstrated the Chevrolet Volt—which was the most popular extended-range electric vehicle launched last year in the US. In addition, we ran six technology workshops on sustainable urban mobility at the expo.
Last year, GM developed a blue paper that outlines its vision for the future of sustainable mobility. In brief, the blue paper discusses technical solutions to reach sustainable urban mobility through vehicles that are increasingly powered by electricity, connected continuously to communications infrastructure, electrically controlled through power equipment when desired, and flexibly designed to meet specific usage requirements. When most people think of the challenges of sustainable mobility they think of energy, fuel economy, and emissions—but they may not realize congestion and safety are equal challenges. The connectivity concept introduces cars that emit signals and thus can “talk” to each other and detect their surroundings, including other vehicles and pedestrians on the street. This will reduce the possibility of auto accidents and improve electric battery efficiency.
The EN-V concept car experiments with a number of futuristic technologies, but we are also working on improving the fuel efficiency of conventional technology—such as the internal combustion engine. There have been many technological improvements, such as on six-speed automatic transmission, variable timing, variable valve, SIDI [spark ignition direct injection] engine, and new power train technology. About 96 percent of vehicles in China use conventional engines.
So, GM is working to improve conventional technology and to develop hybrid, electric, and fuel cell vehicles. GM was first to launch volume production of a hybrid in China—the Buick LaCrosse Eco-Hybrid.
How many people can afford to buy hybrids or electric vehicles in China?
Chen: As in other markets, in China, hybrids are more expensive than conventional vehicles. But the PRC government has been aggressive with subsidies. An $8,000 rebate from the central government, plus local subsidies, could reduce the price by $10,000. Initially in China, hybrids have been purchased for public transport, taxis, government fleets, and by more well-off people. No one has sold large volumes of hybrids in China yet; the infrastructure isn’t ready yet.
Does the PRC government offer subsidies for the purchase of all energy-efficient cars?
Chen: China encourages local production and many subsidies are contingent on the vehicle being locally produced. It doesn’t matter who produced the vehicle—meaning whether the company was foreign or domestic—as long as it was produced in China.
GM produces many of its cars locally in China. Last year the PRC government announced a policy to give ¥3,000 ($460) rebates on the purchase of fuel-efficient cars. GM has 26 vehicles that qualify for the rebate—that accounts for 10 percent of all vehicles in China that qualify for the incentive.
What have been GM’s top challenges in China, and what has GM done to overcome them?
Chen: To win in the world, you have to win in China. So, the challenge is to know the market and continue to develop cars that the market wants. We have to be better than our competitors in terms of design, price, and service.
To win in service, GM launched OnStar [an in-vehicle security and navigation system] in China last year, and it has been very successful. Drivers hit a button, OnStar tells them where to go and where to eat. Every month, we have 15,000 new subscribers and the numbers are rising. We want customers to know that if they buy a GM car in China, they can have a sense of peace and know that we will serve them well. Building a product and offering services that consumers want and need is one of our core winning strategies. Our PATAC JV has played a critical role in adapting to local needs.
What do you predict the China market will be like for GM in 5 or 10 years? What are GM’s future goals for its China operations?
Chen: As an emerging market in the world, China offers unmatched opportunities. We expect China’s auto industry sales to grow in the next few years, but maybe at a more sustainable rate with a more typical pattern of 10-15 percent.
GM remains optimistic about the long-term prospects of the China market and believes we must continue to be an industry leader in sales, product development, capabilities, and advanced technologies. We will work closely with our partners to expand our business “in China, for China, with China.” If auto market sales in China increase just 10-15 percent this year, sales will reach 20 million cars. I think in 15-20 years from now, China will build and sell 30 million cars per year. If a typical car has a 10-year life span, that’s 300 million cars. I’ve been wrong about forecasting China’s volume in the past, but that seems like a reachable number.
Some people worry about what will happen to the environment if China’s auto sector booms. How would you respond?
Chen: In China today, probably 4 or 5 percent of consumers own a car. In the United States about 80-90 percent of people have cars. The world average is probably about 11-12 percent. China still has a long way to go to even meet the world average.
Personal mobility is a freedom. You can’t deprive people from wanting a better life by saying one person can have it and another person cannot. But it has to be done in a sustainable way. It’s very important to grow the industry in a harmonious way so people have mobility and convenience without sacrificing the environment or energy efficiency and while addressing safety and congestion concerns. We believe personal mobility doesn’t have to conflict with the environment. GM’s blue paper shares our vision of how this can be done.