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General Motors' China success

Posted by: Dexter Roberts on January 8, 2006


Given how grim things are looking for General Motors at home, it’s no surprise that the company is touting what was a very successful
last year here in China. Even as GM looks set to be lapped by Toyota and lose its status as the world’s largest auto maker, in China it’s sales soared 35.2% and its market share looks set to edge past Volkswagen to become number one with 11.2%.

Nevertheless, it won’t all be easy sailing for GM in China. Most obviously, GM like everyone else here is competing in a market with already massive overcapacity. That’s driving heavy price deflation across all brands. And a closer look at GM’s China numbers shows an interesting fact: most of its growth is now coming from the small, affordable car segment, and its mini-vehicle joint venture that makes minivans and the popular Chevrolet Spark. Indeed, while GM’s flagship Shanghai venture which makes everything from the Buick Excelle to the GL8 executive wagon family grew 28.7% last year, that was dwarfed by the 43.4% growth at the already larger mini-vehicle venture operating from southwest China’s remote Guangxi province. And while that segment is no doubt where much of future growth will come in China—there are millions of potential first time buyers eager to buy low cost wheels—it’s also one that provides a lot slimmer margins—GM won’t say how its China market margins have been affected, but there is little doubt that they are narrowing.

The small car segement is also already a very competitive one with both Toyota and Hyundai also offering affordable models in the China market. But the real competition may come from China’s domestic players like Chery and Geely, both of which are adept at managing on razor-sharp margins. Indeed, Geely’s sales
last year—although starting from a smaller base—actually grew slightly faster than GM’s, coming in at 37.6%. Even as GM crows about what was an impressive last year, expect ‘06 to be tough for GM—and indeed, everyone else too.

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