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Motoring along in China

Published Dec. 2, 2006

Government worker Xue Weiqing is just the sort of customer General Motors is banking on to help power its turnaround.

At 33, Xue is already buying his second GM car, a shiny Chevy Lova sedan, after outgrowing his Buick Sail.

"I had the Sail for almost two years and it felt just a bit small, so I decided to go for something a bit roomier," said Xue as he waited for his shiny dark blue sedan at a Chevrolet dealership in western Shanghai.

General Motors Corp., beset by sluggish sales and crippling legacy costs, needs China - the world's third-biggest car market behind Japan and the United States - to provide growth it won't find at home and in other Western markets as it engineers its comeback.

While it's closing plants and trimming production in North America, GM is pouring more money into China. It already has five vehicle factories and one engine plant in China, as well as an auto financing venture, and is quickly expanding dealerships.

So far the investment seems to be paying off. Last year, GM surpassed German rival Volkswagen AG to become the No. 1 automaker in China, GM's biggest national market after the United States."In China, GM operates on a level playing field with Toyota," says Peter Morici, a business consultant and professor at the University of Maryland, referring to GM's heavy burdens of pensions and other benefits back in the U.S.

"It does well in China because it has the engineering and marketing know-how to compete without those liabilities," Morici said.

GM is looking increasingly to its Chevrolet brand to rev up sales volume in this increasingly competitive market, where incomes still average only about $150 a month, or about twice that in Shanghai.

In early 2005, GM announced that it would make Chevy its main brand in China. It incorporated the Sail, a compact model that was then part of the Buick brand, into Chevy's economy to mid-sized lineup.

"What we're trying to do is build the brand here," says Steve Betz, Chevrolet brand manager at Shanghai GM, GM's joint venture with state-owned Shanghai Automotive Industrial Corp. "We have to win here. That's the overall goal. We can't take our focus away from here," he says.

In China as well as at home, GM has plenty of competition. Toyota Motor Corp., Honda Motor Co., Volkswagen AG and two major local automakers, Geely Automotive Holdings and Chery Automotive Co., are also fighting tooth-and-nail for market share by expanding the range of vehicles they offer from the lower range minicars and minivans to top-of-the-line sedans. .

A relative latecomer to China, Toyota had a paltry 3.5 percent of the market last year compared with GM's 11 percent. But the company has a dozen plants making parts and assembling vehicles, and aims to raise sales to 1-million units, or a projected 10 percent of the market, by 2010.


New models spur sales

GM and its joint ventures' sales jumped 36.7 percent in China, a tick above industrywide growth, to 645,680 units in the first three quarters of this year, helped by strong demand for newly introduced models such as the Buick LaCrosse and the Lova. That compares with flat second-quarter sales in North America for GM, which reported a net loss of $3.2-billion largely due to one-time costs associated with its restructuring program. In 2005, GM's sales in China rose 35.2 percent year-on-year to 665,390 vehicles.