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Free Loans in China

Posted by: David Welch on August 22, 2007

No matter how bad the news from is in Detroit, General Motors can always brag about its success in China. Indeed, its swift rise to become the emerging market’s top player has stood as a shining beacon of what GM could do when relieved of many of the problems it faces in North America. In China, GM operates free of the burden of massive retiree costs and union wages. It doesn’t have restrictive dealer contracts that all but mandate the preservation of irrelevant brands. Hence, it doesn’t need incentives to lure shoppers to its showrooms.

Or does it? This week, GM started offering car buyers 0% loans. Increased competition is one reason, according to GM. Even though sales from its Shanghai-GM joint venture are up 11.7% and up 20% at its GM-Wuling venture in the first half of the year, market share fell from 12.3% to 10.8%. GM wants to grab marekt share. The company also wants to get more buyers buying on credit. In China, auto loans are still a relatively new phenomenon. Car buyers pay mostly with cash. GM—through its GMAC lending business—is offering 0% loans to get more consumers used to buying on loan.

That makes sense, but GM needs to be careful. Heavy incentives can become addicting when the result in bigger sales. And they cost money. Recall that GM started 0% financing in the dark days after the Sept. 11 terrorist attacks, when consumers froze and car sales started sinking. The marketing move worked, but GM never kicked the habit and is still trying to roll discounts back six years later. It should keep that lesson in mind when using 0% in China.

Reader Comments


August 25, 2007 1:36 AM

The famous line: If you tell a lie a thousand times, eventually lots of people, including magazine editors, will believe it. The lie? GM is losing car sales because it is handicapped by legacy UAW pension plan and health cost. Years ago when GM's 75% domestic market share started its steep decline, the lie was that the Japanese car makers got various generous subsidies from their Japanese government and thus gained an advantage over US Big 3. And to top that claim: Japanes can't build big cars or luxury cars. Fast forward. For over 10 years now, Honda Accord, and Pilot are built in Midwest; Toyota Camry, Highlander, Corolla, Matrix, Tundra are built in midwest, south, west, southwest; Subaru are built in Wisconsin; Nissan has plants in midwest. Even BMW builts X5 in southeast. Lexus is tops while Cadillac is somewhere near bottom. At a time when gasoline is hovering near $3/gal Toyota and Honda have pure hybrid cars while GM has nothing. The truth behind GM's financial problem: the Big 3, especially GM, is not selling enough vehicles to cover their overheads. Why? Because the American consumers refused to continue buying "junk" from the Big 3. Proclaimation to all news editors: Stop blaming unions. Get the facts. Stop regurgitating lies. During the 1960s, GM sold over 75% of domestic cars even though most were unreliable "junk." As to the news headline, the Chinese car buyers are not as well-off as the US counterpart and hence, are price sensitive. GM is using its massive manufacturing facilities to produce low cost cars for the Chinese market. Eventually, as the market matures the Chinese will turn away from GM just like Americans in USA, unless GM improves quality/reliability.


April 22, 2009 4:37 AM

Nice article,keep up a good work.
All the best.

Ryan Decosta

May 13, 2009 3:16 AM

This is a wonderful opinion. The things mentioned are unanimous and needs to be appreciated by everyone. The above thought is smart and doesn’t require any further addition. It’s perfect thought from my side.
Ryan Decosta

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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