Cadillac brand debuts in high-growth market
GM plans to double auto lineup
The Detroit News

BEIJING — In the splendid forecourt of an ancient Chinese temple in Beijing’s Forbidden City, General Motors Corp. launched its premium Cadillac brand in China Monday as part of a three-year plan to more than double its model lineup in the world’s third-largest auto market and fastest-growing luxury market.

“This is another critical piece of the Cadillac renaissance, which we believe is in full swing,” Cadillac general manager Mark LaNeve said.

“The Chinese market could represent up to 20 percent of our global volume” and become the Cadillac brand’s second-largest market after the United States, he said.

GM, along with Chinese partners, plans to invest more than $3 billion in China over the next three years to more than double annual output to 1.3 million units.

The new investments, which will be funded by the profits of GM’s six Chinese joint ventures, is aimed at bolstering the already strong presence of the world’s largest automaker in the huge Chinese market.

GM, which established its first Chinese joint venture in 1997, is now the second-largest foreign automaker in China after Germany’s Volkswagen AG, which came into the market more than a decade earlier.

GM and its venture partners, including the Shanghai Automotive Industry Corp., will introduce nearly 20 new and upgraded models in China over the next three years, including at least three Cadillac models. They also plan to expand engine and transmission offerings.

Luxury market surges

With the launch of the Cadillac brand, GM will expand its lineup in China and tap into a surging market for luxury cars. GM officials estimate premium car sales jumped 200 percent last year, reflecting the rapid emergence of a Chinese class of millionaires.

GM will begin selling the Cadillac CTS sedan in China in the fall and the SRX sport wagon later this year. Next year, it will introduce the Cadillac XLR roadster. It will initially import the cars produced at plants in Lansing, Mich., and Bowling Green, Ky.

Along with partner SAIC, GM is expected to start assembling Cadillac kits in Shanghai within a few months.

“Cadillac will take the image of Shanghai GM to a new level, while giving us the widest range of products in the broadest range of segments,” said Chen Hong, president of Shanghai GM.

Last year, GM generated more than $400 million in profits in China. It produces 11 models with Chinese partners under the Buick, Chevrolet and other brands.

The automaker’s joint ventures can produce as many as 530,000 vehicles a year — and GM last year envisioned increasing capacity to around 865,000 units.

But GM officials said that estimate seemed insufficient, given the strong growth in the Chinese vehicle market and GM’s even greater sales gains in the past three years.

GM’s sales soar 56 percent

GM’s China sales rose 46 percent to 386,710 vehicles in 2003, outpacing the market’s overall 34 percent growth. So far this year, GM’s sales are up 56 percent, around twice the overall market’s increase, giving the automaker a 9.2 percent share of the vehicle market.

“Most economists believe that, by the turn of the quarter-century, China has a very good chance of surpassing the United States as the world’s largest vehicle market,” said Phil Murtaugh, CEO of GM China Group.

China is already No. 3 globally, behind the United States and Japan, after overtaking Germany in 2003.

Disputing charges that the auto industry’s rush into China is destroying jobs in the United States and other industrialized countries, GM said the new China investments would benefit North American plants and suppliers.

“Between 1997, when we launched our major operations in China, and 2003, we imported more than $1.8 billion worth of parts, components and equipment from North America,” Murtaugh said.

“Our sourcing from North America will continue to grow along with the expansion of our business in China.”

Audi has strong presence

VW’s Audi brand has established a strong presence in China’s premium market, becoming the preferred vehicle of top government officials. Audi recently launched its new flagship A8 sedan in China.

Other luxury brands have announced plans to boost sales and produce vehicles in China. DaimlerChrysler AG’s Mercedes-Benz plans to produce E- and C-Class sedans with its Beijing venture partner while BMW AG has just begun producing 5 Series sedans and 3 Series coupes in the northern city of Shenyang.

BMW officials estimate that premium car sales will amount to only about 120,000 vehicles this year in China — but they see huge prospects for growth.

On the assumption that one Chinese inhabitant in 1,000 can afford a premium car, that would result in a potential market of 1.3 million consumers, said Heinz-Juergen Preissler, president of the BMW Brilliance Automotive venture.

Government tightens credit

To prevent China’s ebullient economy from overheating, the government has tightened credit in recent weeks, leading to a drop in car loans and raising concerns about the auto market’s outlook.

The luxury segment, however, is less vulnerable to a credit squeeze because a larger proportion of wealthy car buyers tend to pay cash in China, analysts and industry executives say.

As part of GM’s expansion plans, the automaker will build a new engine plant in Liuzhou, in the Guangxi Zhuang Autonomous Region, with the capacity to build 300,000 engines. It also plans to build a new transmission plant but has not decided on a location.

“GM is leveraging the full range of its global resources in China. GM has the broadest portfolio of any global automaker in China,” Murtaugh said.

The automaker’s product lineup in China includes a new Buick Regal introduced last year, Chevrolet Blazer sport utility vehicle, Buick GL8 executive wagon, small Buick Excelle sedan and Buick Sail family car.

It also sells the Chevrolet Spark minicar, based on the GM Daewoo Matiz, and claims the vehicle was copied by Chinese automaker Chery.

Although GM has been among the most successful automakers in China, it has struggled with its Jinbei GM joint venture, which produces the Chevy Blazer SUV.

GM announced plans in March to restructure the venture with partner SAIC but they have not yet disclosed what models the venture will produce.

Next year, the Chevrolet lineup will be expanded in China to become GM’s second mass-marketed brand in addition to Buick.

As the world’s leading automakers rush into China, investing billions and boosting capacity, the competition has grown fiercer. With more brands flooding the market, and import duties falling, car prices are dropping steadily.

“Margins are going to come down,” Murtaugh said.

GM, Cadillac. How important is the Chinese market to the future of the automobile industry, and in particular, General Motors?

GM launched its premium Cadillac brand in China this past Monday with great fanfare in a presentation directed by filmmaker Ang Lee, with the intention of doubling its model lineup over the next three years.

Cadillac general manager Mark LaNeve said, "The Chinese market could represent up to 20 percent of our global volume." With the debut of its Cadillac brand, GM is aiming to take advantage of China's exploding interest in premium luxury cars. GM estimated luxury car sales soared 200 percent last year, because of the burgeoning class of Chinese millionaires.

GM will start selling the Cadillac CTS in China in the fall, and the SRX later in the year. The XLR will make its debut in the Chinese market next year. The cars will initially be produced at plants in Lansing and Bowling Green, although GM is expected to start assembling Cadillac "knock-down" kits in Shanghai along with partner SAIC within a few months. China could eventually become Cadillac’s second-largest market after the United States, and Cadillac has a tremendous opportunity to craft its image from scratch, in a brand new and crucial market.

China is already the world’s third-largest auto market and fastest-growing luxury market. GM, along with its Chinese partners, plans to invest more than $3 billion in China over the next three years to more than double annual output to 1.3 million units.

http://www.detnews.com/2004/autosins...c01-178184.htm
Report: China auto industry a threat
Rush into nation could take U.S. factory jobs
By Eric Mayne / The Detroit News
DEARBORN — The auto industry’s rush into China could add to a global glut of cars and trucks, forcing the country to become a major vehicle exporter and threatening factory jobs in mature markets such as Europe and North America, the International Metalworkers Federation warned in a report distributed Tuesday.

If China becomes a dominant exporter, the United States and other markets could suffer job losses equivalent to the payrolls of 20 car and truck assembly plants, the report said.

“Everybody wants to be ready to go when the Chinese market opens up,” said Jurgen Peters, president of the German-based trade union IG Metall, a member of the federation. “But nobody really thinks about the consequences.”

The growth of China’s auto industry dominated discussions at the federation’s three-day World Auto Council meeting that opened Tuesday in Dearborn. The meeting has attracted about 200 trade unionists from 39 autoworkers’ unions in 25 countries.

Automakers have earmarked $12 billion to establish manufacturing operations in China, the report said.

More than half of the investment was committed during an 18-month period beginning in 2002. It excludes $3 billion that General Motors Corp. and its joint-venture partners plan to invest in the country over the next three years.

In coming weeks, Ford Motor Co. is expected to reveal additional plans to expand in China.

Citing a KPMG forecast, China’s passenger car sales will approach 3 million units in 2007. But by then, auto capacity could be as high as 6 million units based on current industry plans.

The surplus of 3 million units “is equivalent to the output of 15 to 20 average-sized auto assembly plants,” the report warns.

China’s low wage levels, coupled with tight government control over workers and organized labor, create a competitive advantage over regions such as North America and Europe, where the auto industry and labor unions are well-established.

The federation wants the playing field leveled.

“Many observers look at today’s auto industry and see nothing but overcapacity: too much production chasing too few consumers,” said Ron Gettelfinger, president of the United Auto Workers union. “We in the trade-union movement believe the solution is just the reverse. ... There aren’t enough workers earning money to support global demand.”

Gettelfinger, a longtime critic of working conditions and human-rights abuses in China, called on the country’s government to enhance worker rights.

“Imagine the potential purchasing power of 1 billion Chinese if they had the right to join unions and bargain for a better standard of living,” he said.

The federation has signed “international framework agreements” with DaimlerChrysler AG, Volkswagen AG and three suppliers to preserve minimal standards for company operations in China.

Among the standards are the abolition of child labor and allowing freedom of association.

You can reach Eric Mayne at 313-222-2443 or emayne@detnews.com.