Car Manufacturers

Driving force

PUBLISHED : Monday, 13 February, 2012, 12:00am
UPDATED : Monday, 13 February, 2012, 12:00am

The biggest news in the auto industry is Detroit's comeback with a vengeance in 2011. The new GM reclaimed the title of the world's largest carmaker in terms of units sold - over 9million last year, and with a handsome profit. Ford sold over 2million cars in the US last year, while it hasn't released total global sales yet. But its US$20.2billion profit is the second largest in company history. Even the perennial lame-duck Chrysler eked out a small profit for the first time since 1997.

It's necessary to point out that Detroit's turn of fortune could not have been achieved without contributions from China. Take GM as an example, which has been highly successful in China for the past decade. It sold close to 30per cent of its global production in China, a record 2.55million units, more than the 2.5million it sold in the US. The joint venture between GM and SAIC Motor - Shanghai GM - has become the most successful auto operation in China, with several of its models regularly making the monthly top-sellers' list.

In the US, GM's leadership position in market share is threatened by Toyota, but in China, GM is battling Volkswagen, with Toyota way behind. For two consecutive years now, GM's Buick Excelle has been the No 1 sales model in China. Buick, a beleaguered 108-year-old brand whose owners' average age in the US is 58, has received a second lease of life in China, where it is seen as a trendy upscale brand for well-heeled younger white-collar workers. Today, Buick sells more cars in China than in the US.

The auto industry is probably the most prominent example of how the two countries' economies are inherently interwoven, and how American companies can co-operate with, and benefit from, a rising China. Today, car manufacturing is all about scale, and there is still much economy of scale to be exploited by joining hands across the Pacific.

Interestingly, Chinese and American people have much in common in terms of car tastes. Unlike the Europeans and Japanese, who prefer boxy little hatchbacks, both Americans and Chinese love large family-size sedans. Look at the list of the top 10 selling cars in the US: half of them also sell like hot cakes in China. It makes great sense to develop common models for the two markets based on the same platform for car frames and power train.

Indeed, GM and SAIC are working closely on a global scale to develop the next generation of vehicles based on the traditional internal combustion engine and new alternative energy technologies. In fact, it is no exaggeration to say that the joint venture is quickly moving in the direction of the Renault-Nissan alliance, where the two companies share one chief executive and are run pretty much like one.

The prime success story of the alliance between GM and SAIC is the SAIC-GM-Wuling operation, which is a three-way joint venture between GM, SAIC and a small minority share controlled by the Guangxi government. The product line of mostly 'mini-minivans' - or compact MPVs - priced from 25,000 to 60,000 yuan (HK$31,000 to HK$74,000) probably does not command much respect from auto giants. But they are selling very well: 1.3million in total in 2011. This puts the Wuling operation in the enviable position of being the largest automaker in China in terms of units sold, a fact very few people know. Without those humble mini-minivans, GM's sales would lag way behind its arch-rivals Volkswagen and Toyota.

The joint venture's unique product line and 'low cost, high value' motto make it an ideal match with GM's global strategy. Given its price points, GM simply would not be able to make a profitable vehicle on its own. And without a product like that, GM would have no future in emerging markets around the world. In fact, GM's emerging-market strategy is now entirely based on the Wuling venture's core products and technologies. GM has also joined hands with SAIC to build assembly factories in India and Egypt for the three-way venture, with South America also on the cards.

Such a venture also benefits from engine technology transfers from GM and from adopting the US giant's manufacturing and product development processes, so that its products meet GM's standards. In India and Egypt, GM's existing sales channels and the venerable GM brand name are also great pluses.

GM's success in China puts an end to a hotly contested theory in each country. In the US, it refutes the theory that the American auto industry cannot survive amid global competition. On the China side, it shows that the joint-venture model can indeed take its indigenous companies onto the world stage, in addition to just providing domestic jobs and tax revenues. It is a winning strategy for both partners.

As the auto industry continues to consolidate, there will probably be no more than five or six major global players left standing. China is the world's largest auto market. As such, it would be a shame if no Chinese car companies make it to the elite club of global giants. Such hopes rest squarely on companies that can co-operate and grow together with the current auto giants.

John Gong is associate professor at the Beijing-based University of International Business and Economics. johngong@