GM Gets Ambitious in Asia
Apr 23rd 2012 2:45PM
Updated Apr 23rd 2012 4:28PM
Ford's (NYS: F) recent big investments in factories in China -- more than $1.3 billion worth -- have received a lot of attention lately, and rightly so: After a relatively late start, the Blue Oval is determined to carve out a larger piece of the world's largest (and still growing) automotive market.
But while Ford is working hard to catch up, the Chinese market leader -- Ford's ancient Detroit archrival, General Motors (NYS: GM) -- isn't standing still. As it made clear at this week's Beijing auto show, GM is looking for much more from its Asian operations.
New initiatives for GM's biggest market
GM CEO Dan Akerson was in Beijing for the auto show, which is no surprise given China's importance to GM. While the company still makes more money in the U.S., it sells more vehicles in China than it does anywhere else in the world and more than any of its rivals.
GM's sales growth in China has been strong recently even as the overall market has cooled. But GM isn't resting on its laurels. Speaking with reporters in Beijing on Monday, Akerson laid out some big plans:
- More dealers. GM had 2,900 dealers in China at the end of 2011. Plans are under way to boost that significantly, Akerson said. Six hundred new dealerships will be opened by the end of this year. While GM is well-established in China's major metropolitan areas like Beijing and Shanghai, it still has considerable room to expand in less heavily populated areas.
- More production. Akerson said GM will expand its production capacity in China considerably: By 2016, GM and its joint venture partners will be able to produce five million vehicles a year in the country. That's roughly double the number of cars they sold in China in 2011, and represents a big bet on the continued growth of the Chinese market -- and perhaps, on Shanghai GM's ability to expand export markets for its vehicles.
- More engineering. Akerson says GM will expand its Pan-Asia Technical Automotive Center, a joint venture with SAIC in Shanghai, putting it in charge of developing a host of new vehicles for markets around the world. PATAC, one of six GM technical centers worldwide, will become GM's second-largest over the next few years, trailing only the company's massive facility in Warren, Mich.
- More Cadillacs. While Buick and Chevrolet are mainstays on China's automotive best-seller lists, GM luxury marque Cadillac has a much smaller profile in the Middle Kingdom. Akerson says that's about to change, with four new models coming to China over the next four years.
That last point is significant: While Cadillac's sales totals will never be anywhere near Chevrolet's, the brand is increasingly a big part of GM's overall global strategy.
Expanding Cadillac sales in China (and the U.S.) is part of a larger GM strategy to hedge against the possibility of a decline in truck sales. Rising gas prices and tightening regulations could put a damper on the sale of high-margin pickups and SUVs in coming years, Vice Chairman Steve Girsky told Bloomberg. Working to expand sales of (high-margin) luxury vehicles makes a lot of sense, and luxury is one segment of the Chinese auto market that is still hot.
GM's push to expand Cadillac is gathering steam, with the company sponsoring a special pavilion at the Beijing show complete with scale models of President Barack Obama's custom Cadillac limousine. The company rolled out the new XTS sedan at the show, one of four new Cadillacs planned for China -- and one that could be produced locally.
While Akerson didn't give details, he did say today that the company has plans to produce more Cadillacs in China. Most of the Cadillacs currently sold in China are imported from the U.S., and thus subject to tariffs that make them more expensive than rivals. That's one of the factors that has left Cadillac far behind rivals such as Volkswagen's (OTC: VLKAY) Audi brand -- and one that the company is determined to change.
Even if GM's efforts to expand the brand are successful, Cadillac sales are unlikely to amount to more than a small fraction of GM's total in China; the company is hoping to raise annual sales to 100,000 by 2016, up from the roughly 30,000 sold last year, and to about 150,000 by the end of the decade.
But even that added volume is significant: The added sales volume will help offset the development cost of higher-end (and higher-profit) new models, which can be sold in China, the U.S., and elsewhere -- part of GM's push to surpass Toyota's (NYS: TM) Lexus as the world's fourth-biggest luxury-car brand, after the German big three.
Of course, to make all this happen, GM will need to up its game, to design and build Cadillacs that can compete with the best from brands such as Mercedes-Benz and BMW. Can GM's engineers pull it off? We'll find out.
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At the time this article was published Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors and have recommended creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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