SHANGHAI, China — A decade ago, Shanghai had five car dealerships selling Buicks, the top-selling General Motors brand in China. Today it has 27.
And the crowds of shoppers that fill many of them are young, ready to pay cash and not inclined to haggle over the sticker price.
As GM prepares a public stock offering later this year, China is emerging as a crucial piece of its appeal to potential investors - and a surprising down payment of sorts for U.S. taxpayers, who would beginshrinking their 61 percent equity stake in the company.
In the first half of this year, GM’s China sales rose 48.5 percent over the same period last year, and for the first time ever, the automaker sold more vehicles in China than in the United States. Just 13 years after entering China, GM now says the country accounts for a quarter of its global sales - blistering growth that even GM did not expect this soon.
“China’s a big piece of the value of the company,” said Stephen Girsky, GM’s vice chairman for corporate strategy and business development. “And since we pull cash out of China, it helps fund investments in other parts of the company as well.”
Analysts estimate GM is worth $50 billion to $90 billion, with China accounting for about $15 billion of that total. The U.S. government converted about $43 billion of aid to GM into its equity stake, which is expected to be sold off over time after the company is publicly traded. A valuation above $70 billion or so would allow the government to earn a profit on its stake.
Through joint ventures with China’s SAIC Motor Corp. and other local manufacturers, GM is this country’s largest vehicle manufacturer,accounting for about 13 percent of the nation’s fragmented car market. Its product line aims to cover the broad spectrum of needs, like the $5,000 Wuling Sunshine, a bare-bones minivan wildly popular in rural areas, and the luxurious Cadillacs that can be seen in the wealthy neighborhoods of Beijing.
Last week, GM announced plans to create a seventh brand to sell small passenger cars. In the United States, GM is down to four brands, after shedding Pontiac, Saab, Saturn and Hummer during its bankruptcy.
“This is not some sort of flash-in-the-pan investment strategy,” said Michael Robinet, an analyst with the research firm IHS Automotive. “During the bankruptcy process, GM China was the beacon in the night that GM always had in its back pocket, and China will be a vital cog in GM’s machinegoing forward.”
GM said it earned about $400 million from its China joint ventures in the first quarter of this year, when it earned a total of $1.2 billion outside of North America and Europe. Its total corporate profit for the quarter was $865 million because of losses and other costs elsewhere.
While GM’s fast-growing China operations are helping to offset the automaker’s problems in the United States, it ultimately will need to do better on its home turf to restore its financial health. Its U.S. market share so far this year is down from 2009. Analysts said GM’s overall prospects still hinge more than anything else on its North American operations being healthy, because that is where it can generate the mostincome.
The company’s success in China has been helped by Chinese consumers not having the skepticism about GM that is commonly seen in the UnitedStates. In China, many shoppers know little about cars and go to a dealer for guidance.
“What we offer is accepted at face value,” said Kevin Wale, the president of GM China. “We don’t carry any baggage, basically. We get treated for what we deliver.”
GM officials say no U.S. taxpayer money has been used to expand in China, although a Chinese government stimulus program that encouraged sales of clean vehicles and helped farmers and other rural residents buy vehicles has increased consumer demand there.
Buick is the company’s star. Favored by China’s last emperor, Buick is perceived as sumptuous and stylish, a contrast with its staid image among many Americans. GM sold nearly half a million Buicks in China last year, almost five times the brand’s U.S. sales.
“I was so fascinated by the shape of this car,” said Xu Tianpei, who bought a Buick Regal at the Yongda dealership in Shanghai for about $34,000, including taxes and insurance.
Shen Hui, the general manager at the Shanghai Yongda Buick dealership, said discounted prices were a rarity because of the psychology of the Chinese car market, which for many years evolved around scarcity.
“People will not buy if the price is discounted because they think it will fall even further later on,” he said. “But when there is no discount and tight supply, they will worry that there won’t be any cars left.”
GM expects to sell more than 3 million cars and trucks in China annually by 2015; from January to June of this year it sold 1.2 million vehicles, versus 1.08 million in the United States. GM’s sales in China in the first half of 2010 were quadruple those of the Ford Motor Co.
GM has been a part of the U.S. industrial landscape for more than a century, but it has been in China only since 1997.
Still, that was early in the development of China’s consumer market for cars and trucks, which has given GM an advantage over rivals that became significant when it was seen how quickly demand was rising.
GM has for years been heavily focused on investing in China and other emerging markets, and it has been introducing some vehicles, like the Buick LaCrosse and Chevrolet Cruze sedans, in China before the United States and other countries.
In addition, GM has greatly enlarged its engineering and design work force in China. It is building the country’s largest proving grounds and broke ground last week on a $250 million advanced technology center to research batteries and other alternative energy sources.
GM’s hourly work force in China has grown to 32,000 people at 10 factories, including its joint ventures, while its U.S. operations have shrunk to 52,000 hourly employees from a peak of 468,000 in 1979.
Tim Dunne, director of global automotive operations at the research firm J.D. Power & Associates, said China’s huge population did not guarantee success for automakers but that GM had done well because of its focus on meeting consumers’ tastes.
“You’re talking about one of the most competitive markets in the world,” Dunne said. “They’ve surpassed my expectations. They marshaled resources into China and made sure they did it the right way.”
Wale, GM’s China president, admittedly has very different concerns from his counterparts in Detroit. As the company’s sales were falling 30 percent in the United States in 2008 and 2009, they were surging 67 percent in China.
While rapid growth is the better of the two problems to have, the consequences of any missteps in China can reverberate throughout GM worldwide.
“If you’re not ready and you miss the market growth, then you miss it for a long time,” Wale said.
Information for this article was contributed by Bao Beibei of The New York Times.
Business, Pages 69 on 07/25/2010