Cruise control

The news from Detroit has been gloomy, but China has remained a source of hope for General Motors (GM). The company posted record China sales in April of 151,084 units, a 50% rise from the previous year. Kevin Wale, president and managing director of GM China, spoke with CHINA ECONOMIC REVIEW about the company’s products, strategy and increasing domestic competition.

Q: How would you describe GM’s overall strategy in China?
A: China is the most important growth market in the world. There’s no question that it will soon be the largest car market in the world. Our strategy was to work with a great partner and we’ve been with Shanghai Automotive Industry Corp (SAIC) for a long time. We’ve been fast to market, but we’ve made a commitment to bringing in better technology and better cars. We also have the best automotive technological capability in China, so we’re able to develop and adapt vehicles quickly to the market. We have a diversified manufacturing base in five or six different locations and very strong distribution networks – so we’ve built the core foundations of strong growth over a period of 10-12 years. The reason we spoke recently about the objective of doubling our volume target is that on the same day we announced that we would reinvent our whole product portfolio.

Q: Speaking of new products, GM seemed to be downplaying the Chevrolet Volt at the Shanghai Auto Show in April…
A: We’re going through a product renaissance with Buick, and we obviously had the Volt and the Chevy Cruze. We just couldn’t put them all front and center stage. You don’t often get an opportunity to showcase three or four brand new production models, so we chose to do that. But we’re very committed to the Volt. We will introduce it here in 2011, right after it’s introduced in the US. We think that electric vehicles and alternative propulsion systems are an important part of China’s automotive industry, and we spend a lot of time understanding where the trends are going.

Q: A trend among automakers seems to be multi-brand strategies. How do you see this as a company with experience in that area?
A: I have two sayings. The first is there’s nothing new in the China market that I haven’t seen before, except it happens five times faster. And the second is that anything we do successfully will happen in other brands fairly shortly thereafter. Now, having a multi-brand strategy – and knowing that it works – is being copied by other car companies. Just about everybody’s doing it. The distinction is that we’ve been doing multiple brands for a long, long time. And it’s somewhat more difficult than just coming up with a new name and putting it on the front of a car. It takes time, money and discipline. But China is a huge market. It’s hard to imagine that you could cover it with a single brand.

Q: Many new Chinese brands are aimed at the premium segment, which has traditionally been the domain of foreign brands. Does that worry you?
A: It’s a natural objective to try to demonstrate your capabilities. And then the higher up you go in terms of car size, the greater return per unit sold. This means greater long-term profitability for the domestic companies if they can successfully transform their business model. Every young car company in the world aspires to that, and very few of them get there. Does it worry us? No. We’d like to have a monopoly on everything, but we don’t. There’s a lot of competition out there, and we’ve got to beat them. It doesn’t matter whether they’re a local company or an international company, we’ve still got to be quick to the market with products and more efficient in the way we build and distribute them.

Q: GM – especially through its small Wuling vans – benefited from the government’s tax cuts for small car purchases. Did high unit sales come at the cost of revenues?
A: As GM has demonstrated in China, we know how to make money at all sorts of price points. No one ever thought that would be able to sell Wulings and make money, but our business model is that no matter what you sell, you’ve got to make money on it. A point I would make, though, is that not all the sales were down at the bottom end. We’ve seen a drop in some segments, but we’ve been introducing cars like the [Buick] Regal and the Cruze that are higher up the product line, and they’re doing very well.

Q: Where are you seeing the most growth within China?
A: Everywhere. In the tier three and four cities, the demand is very strong because of the tax incentives and government stimulus action, so everyone’s struggling to meet demand there. But we’re seeing pretty solid demand across the tier one and tier two cities, too.

Q: What do you make of reports that GM may sell Chinese-built cars in the US?
A: I can’t help you much on that because you know as much about it as I do. We really aren’t in a position to talk about what might be happening in the future – there are always possibilities being considered. But our strategy in the US and in China is to build predominantly where we sell. We do import some vehicles into China, we import some into the US, but our central focus is on building where we sell.

Q: What do you see as the major risks facing GM in China right now? What are the opportunities?
A: Two years ago, I would have said the only risk in the short term is a major exogenous influence, and they don’t come much bigger than a global meltdown. And surprisingly, China hasn’t been affected all that much. It’s hard to imagine you can’t have a growth rate in China over the next 5-10 years of 7-8%. It’s just a factor of the population and economic growth and people moving into what we call the vehicle acquisition stage. We are constantly looking at what we’ve got to do to be flexible and how to handle future growth opportunities, whereas the rest of the world is predominantly focused on managing capacity so as not to end up with excess cost. We have seen very little impact from what is happening in the US, and we don’t expect it to have much impact going forward. Sometimes a program that we’re interested in might be delayed six months, but we are going through a great product renaissance. We’ve probably got as much product as we can handle right now.

Q: What are the prospects for GM’s partnership with SAIC?
A: Even if we weren’t forced to have a partnership, we would probably have chosen to have one anyway because of the benefit of having a team that is able to understand the customer. The partnership has been a real bonus to both parties – it hasn’t been a penalty at all. We value it enormously and intend to continue with it.