General Motors (GM) is China’s auto leader in terms of sales, putting 876,747 cars on the road last year. It operates seven joint ventures and two wholly-owned foreign enterprises in the country, employing more than 20,000 people. GM’s stable of brands includes Buick, Cadillac, Chevrolet, Opel, Saab and Wuling. Joseph Liu, vice president of vehicle sales, service and marketing for GM China, spoke to CHINA ECONOMIC REVIEW about the company’s local strategy.
Q: How did GM build a brand name for Buick in China?
A: Buick was commonly used by many dignitaries before and after the revolution. When we re-entered the China market the Chinese government asked us to use the Buick brand. Now the Buick brand is well-established in the field of executive and official transportation in this country.
Q: What were the challenges of branding your luxury autos Buick and Cadillac in China?
A: Branding Cadillac is somewhat different [from Buick] because it was not relaunched until 2002. We want to position the Cadillac higher than Buick, at the top of the premium market, along with competition like Mercedes-Benz, BMW and Lexus. This segment requires more investment and time to build the brand image but we are confident we have the right products to be successful in China. Just as important, the right distribution network and service infrastructure are coming along as planned to support the brands’ growth here.
Q: How competitive is the China luxury car auto market?
A: The segment is intensely competitive. China has the world’s largest trade surplus and is setting new records every month. Therefore the number of newly rich is growing exponentially. All the luxury brands are eager to participate in this lucrative market, so you will see them all bringing their latest and best products to this marketplace.
Q: What do Chinese consumers want?
A: On the surface, Chinese consumers want the same things all customers want – good value for their money, good style, a reliable and safe vehicle. But their tastes for features and needs are quite different from other markets. We tailor our vehicles to meet these needs. For instance, our horn specification needs to be 10 times more robust than in, say, US cars. That’s just one small way in which this market is unique.
Q: How else are the Chinese consumers’ needs different from your customers from other markets?
A: For Buick and Cadillac models we need much more rear seat amenities such as climate controls, DVD and radio controls since the principal owners are chauffer-driven. Massage chairs in the back seats of our Cadillac SLS, Buick Park Avenue and LaCrosse models are another good example. Features and requirements are different also in economy models where electric windows and central locking doors are expected as standard even in entry level models. This is not the case in Western Europe, Australia or the US.
Q: Does GM have a competitive advantage?
A: From this perspective GM has had quite an advantage over its competitors for more than a decade, because we have invested in PATAC – our design, engineering and development center in Shanghai since 1997. This allows GM to design and engineer our cars leveraging global architecture and global resources to fit the market needs and respond to the market as it progresses much more quickly and accurately.
Q: How is working on a joint venture with Shanghai Automotive Industry Corporation (SAIC)?
A: GM and SAIC have the strongest partnership in China’s automotive industry. Our partnership with SAIC is enabling us to do far more in China than we could on our own while sharing the risk in new investments. Over the past decade, we have established seven joint ventures engaged in manufacturing, engineering and design as well as sales and service, retail and wholesale financing. All seven are predicated on creating a win-win situation for both partners by utilizing the best resources of each. We are happy with our partnership with SAIC.
Q: GM has announced that it will sell hybrid cars in China by 2008. What led to this decision?
A: The tremendous growth of China’s economy over the past two decades has created environmental and energy challenges, the likes of which this country has never seen before. The Chinese government has wisely set a series of ambitious targets for saving energy and reducing waste in the 11th Five-Year Plan. Reaching these targets is critical, not just for China, but for the global environment as well.
Q: When will you launch these models?
A: GM will launch 16 hybrid vehicles in the next four years around the globe, including GM’s first hybrid passenger vehicle to be launched here in China next year. These vehicles will come equipped with one of three different hybrid systems designed to meet global driving patterns and needs. The systems vary in complexity and cost, providing an opportunity for more consumers to own a hybrid vehicle and benefit from increased fuel-economy savings.
Q: What are some of your short-term goals in setting up these energy-efficient cars?
A: Some of our near- and mid-term solutions include applying more fuel-efficient six-speed Automatic Transmission to our China product line, and increasing the fuel efficiency of our internal combustion engines with technologies such as variable valve timing and spark ignition direct injection. We are also experimenting with HCCI engines, which bring diesel efficiency to gasoline engines without emissions. Ethanol is a gasoline supplement in some markets in China and other countries that has almost replaced gasoline. We are investing in research to bring cellulosic production of ethanol to free up food stock as a source of ethanol.
Q: What trends do you anticipate in the China market in the future?
A:China’s strong economic growth will continue to drive the auto industry as people fulfill their aspiration for mobility. We see further segmentation of market due to evolving consumer needs and increased competition.
Auto growth factors
- Rapid increase in private demand
- Global OEMs bringing in more advanced products
- Local brands aggressively entering passenger vehicle market
- Rising demand outside major cities into 2nd, 3rd and 4th-tier cities