06/16/97 GM'S NEW PROMISED LAND

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GM'S NEW PROMISED LAND

The tide of auto companies rushing into China is beginning to ebb. Peugeot is trying to bail out of its money-losing Guangzhou plant, shuttered by flagging demand. Volkswagen, considered China's automotive success story, is suffering for moving in too fast. Jettas from its Changchun operation are selling poorly, and VW just won a battle for control of sales and marketing from Chinese partner First Auto Works. Mercedes-Benz executives are now losing hope that they'll ever nail down a $1 billion deal to build minivans in China. The company is even skipping the high-profile Shanghai Auto Show, which begins on June 11.
So why is General Motors Corp. on a tear to expand in China? GM recently inked the final deal for its $1.6 billion investment in a joint venture to assemble Buick sedans in Shanghai, and it's rushing to build the factory with round-the-clock construction. To cinch that deal, GM agreed to build a $40 million research and development center with Shanghai Automotive to help the Chinese partner upgrade its auto-making skills. Meanwhile, GM's Delphi Automotive Systems parts unit has invested $250 million in 14 Chinese ventures and is pursuing eight more. Now, the U.S. auto giant is chasing another huge deal: the Guangzhou plant that Peugeot wants to unload.
BEACHHEADS. The reason for GM's hurry: It believes it must establish beachheads now--even if it loses money for a while--to cash in on future Chinese market growth. Car sales in China should grow 20% annually through 2000, from last year's 380,000 cars, and reach 3 million within a decade, estimates Liu Jinghui, an associate at A.T. Kearney in Beijing. Says GM Chairman John F. Smith Jr.: ''The potential for China is just tremendous.''
Even though few in China can afford even a modest car, GM figures that the country's rapid growth is doubling personal income every seven years, boosting the future car-purchasing power of many consumers. Says G. Mustafa Mohatarem, GM's chief economist and a member of the company's China team: ''Our view is that China is right on the cusp.'' So GM is making China the centerpiece of its Asian strategy.
Other U.S. auto companies are proceeding far more gingerly. Chrysler Corp., disenchanted after a failed bid to build minivans in China and battling knockoffs of the Jeeps made at its Beijing joint venture, has abandoned efforts to expand in China for now. Ford Motor Co., beaten out by GM for the Shanghai deal, has settled for a smaller foothold in the provinces. It is investing $95 million in a Jiangling Motor plant that will build Ford-based vans and also has five parts ventures near Shanghai. Vaughn Koshkarian, president of Ford China, says doing business in China ''takes getting used to and a lot of patience.''
GM has had its share of problems in China. Its Shenyang truck plant in northeastern China has been idle for roughly three years while negotiations continue about what the plant should build. But GM isn't about to swerve from its full-speed-ahead strategy. ''The more halfheartedly you go, the less likely you are to be successful,'' says Mohatarem. ''If you don't take risks, you'll be left behind'' when the market takes off.
ONE PARTNER. Smith says GM's new ventures can steer clear of the pitfalls that are plaguing some competitors. For example, GM has a single partner in Shanghai, while Mercedes has been caught between two Chinese partners with plants hundreds of miles apart. And, says Smith, if he gets Peugeot's Guangzhou plant, he'll insist on making a current model--not an aging one as the French carmaker did.
GM would like to do even more. Smith notes that GM's Shanghai plant could produce a Chinese version of the company's new minivan, since it is based on the same chassis as the mid-size Buick sedans. Smith adds: ''We'd love to do that''--provided they get permission.
By Kathleen Kerwin in Detroit, with Dexter Roberts in Beijing, Mark Clifford in Hong Kong, and bureau reports

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