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When Wei Wei, a Shanghai garment exporter, went shopping for a car in September, she decided on a Buick G model. Wei, 29, liked the fact that the four-door luxury sedan was manufactured locally, meaning it could be serviced easily. Pricey? By Chinese standards, quite. But Wei felt she could afford the $36,000 price. So she put down a 20% deposit.
That's when her troubles began. Not only did the brand-new Buick have a dent in the door but the upholstery was discolored. Wei demanded her deposit back. The dealer refused. "Their attitude was very bad," Wei says. She finally got her money back, but the experience had cost GM a sale.
HITTING A SPEED BUMP. No one said building and selling cars in China would be easy. Among the hassles: a government that continues to dictate tough terms to the industry, consumers with a rudimentary understanding of personal transport, and yes, shady dealers. The bottom line: General Motors Corp.'s (
GM
) joint venture with the Chinese government, Shanghai GM, which once seemed so promising, has hit a speed bump.
Two years ago, the Buick G in China looked like a runaway success, selling 21,000 models in 1999 alone. The car's instant popularity prompted boastful predictions from the company that it would sell 50,000 this year.
That hasn't happened. While sales are up 43%, Shanghai GM expects to move only 30,000 Buick Gs in 2000. The company was even forced to shut down the production line for three weeks earlier this year because inventories were building up. Shanghai GM expects to have a profitable year, but it won't be the bonanza it had hoped for. Nor is the company still predicting that it will boost its current share of the mainland auto market from 4% to 15% by 2005.
SERIOUS COMPETITION. Analysts blame the slowdown on sticker prices that few Chinese can afford. And, they say, many consumers are holding off on car purchases until China joins the World Trade Organization, in the mistaken belief that automobile prices will fall immediately afterward. Shanghai GM is also up against serious competition, including Volkswagen and Citroen, which sold some 120,000 cars combined last year.
GM badly needs another hot seller. So it's moving down-market with the Buick Sail, a four-door compact that will sell for $12,000 -- the first auto in China in that price range. Launched in mid-October, the model should appear in showrooms in the first half of next year. "This will be a car that absolutely fits the mainstream market," says Philip Murtaugh, chairman and CEO of GM's China Group.
Making inroads into that market is crucial. In the past, most cars in China were bought by state enterprises, government ministries, and hotels. Now, as urban incomes rise, ordinary folk want their own wheels. At the same time, the government is eager to boost private car ownership, as part of its effort to spur consumer spending. As a result, the new-car market is expected to grow 10% a year to reach 860,000 cars by 2005, says auto analyst Yale Zhang.
FIRST TO MARKET. Right now, GM is targeting the growing number of Chinese whose annual incomes reach $4,000 or more and who usually work at joint state-private ventures or at private businesses. GM Shanghai faces tough competition from Toyota, Ford, Volkswagen, and Honda, all of which intend to launch their own affordable models. But GM was first into the niche, and analysts rate its chances of turning the Buick Sail into a people's car as promising.
The 1.6-liter-engine Sail has driver and passenger air bags, four-wheel antilock brakes, and a safety cage -- features that don't appear on locally built small cars. GM already has a respected brand name, strong marketing, and a good distribution network in China, according to Zhang. "Personally, I'm very confident about this small car," he says.
GM is also embarking on an aggressive consumer-education campaign, no small undertaking in a nation where car ownership is so new. In one incident, a customer insisted his car didn't live up to the advertised gas mileage. On a test drive, GM representatives discovered the man was stomping the accelerator and slamming on the brakes -- not recommended for saving fuel. Since then, GM has held a Buick owner's rally in Beijing to teach sound driving techniques. "The expectations of Chinese consumers are higher and more critical than any market I've ever been in," says a diplomatic Murtaugh.
"THE DEALER'S PROBLEM." Another crucial task: to do away with suspect dealerships, set up without GM Shanghai's knowledge or approval. GM and its joint-venture partner, Shanghai Automotive Industry Corp., have developed a network of more than 45 authorized dealers, which they plan to double by the end of 2001. GM claims it's the first company in China to computerize its dealership system and that a coast-to-coast database will allow it to offer decent after-sales service and quickly address customer complaints.
The company's emphasis on extending its customer service already is paying off. It was only with the help of an authorized GM dealer that Wei was able to get her money back. That experience so impressed her that she's still thinking about buying a Buick as a second car. "This is not the car's problem," she says. "This is the dealer's problem."
Now, Wei is looking at the cheaper Sail, which she reckons would be a good fit for her fast-expanding company. She's even considering offering interest-free loans to her 14-member staff to buy their own Sails. "They could get to work quicker," she says, and avoid the stress of commuting on public transit. GM Shanghai can only hope that a lot of other Chinese bosses think the same way when its new car hits the market.
By Alysha Webb in Shanghai, with Dexter Roberts in Beijing Edited by Douglas Harbrecht
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Copyright 2000, Bloomberg L.P.
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