By on August 29, 2011

GM China always had a comfortable lead over Volkswagen in China – at least on paper. More than half of GM China’s volume comes from small delivery vans, made by a three-way joint venture with SAIC and Wuling, in which GM held 34 percent. This share had been recently raised to 44 percent. The joint venture agreement allows GM to claim 100 percent of the small cars as theirs. “Whatever turns them on” (or Chinese word to that effect) say the other JV partners who happily count the cars again in their annual reports. There is one big problem with that. The “breadvan segment” (so called because the cars looks like loafs on wheels) has been shrinking and is ruining GM’s otherwise good Chinese numbers.  Now, GM can’t take it anymore, and is using a familiar tactic: “GM is sacrificing profit margins to maintain market share in China, cutting prices of low-cost minivans by as much as 15 percent to offset slowing sales in the world’s largest vehicle market,” Bloomberg reports.

“GM does not rely on the minibus for profit,” said Jenny Gu of J.D. Power China. “They only contribute volume.” At 15 percent off, the already razor-thin margin could evaporate. Now remember when we were young and swore we would stop when we need glasses? Same here.

“We made some short-term focused promotions to help the overall market situation,” Matthew Tsien, VP at SAIC-GM-Wuling, told Bloomberg. “We don’t expect it to be a long-term issue.”  Same here.

June ’11 June ’10 Change YTD Change
Shanghai GM 101,524 71,782 41.4% 600,002 25.00%
Chevrolet 51,312 38,304 34.0% 297,841 14.50%
Buick 54,140 36,486 48.4% 324,919 28.20%
Cadillac 2,722 1,812 50.2% 14,078 88.30%
Wuling 88,027 99,115 -11.2% 641,324 -5.40%
FAW-GM 4,327 5,220 -17.1% 30,332 -38.80%
All GM JV 193,878 176,486 9.9% 1,273,502 5.30%

The best-selling Wuling Sunshine minivan has been reduced to 28,000 yuan ($4,384) from 33,000 yuan earlier this year, according to GM.

Before the price reduction, SAIC-GM-Wuling made about 2,000 yuan ($313) on average for every minivan, says J.D. Power. GM’s 44 percent stake would translate to $138 per car.

In the meantime, Volkswagen is breathing down GM’s neck. GM sold 1.27 million vehicles in China in the first six months, 641,000 of those Wulings (see table.) Volkswagen sold 1.1 million cars in the same time in China, none of them cheap minivans.

 

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7 Comments on “GM China Copies Old Detroit Tactic: Sacrifice Profits For Volume...”


  • avatar
    ash

    Bertel,

    All is well and good if you ignore VW’s fleet sales to governments and taxi users. How many cheap Jetta’s and Santana’s flew out of FAW-VW and SH-VW’s gates in that time?

    In 2010 224,523 Jetta’s were sold by FAW-VW and 111,781 VW Santana’s by SH-VW giving a total of 336,304, or roughly a third of VW’s sales were also low end cars.

  • avatar
    MrWhopee

    Somehow, TTAC still hasn’t done any review of this oft-mentioned Wuling. Now that it’s on Forbes’ cover, maybe it’s time? Send Jack Baruth to Beijing to review this thing! I think it would be very interesting to read what Jack have to say about its handling! My brother used to own something that looks a lot so much like the thing that I think it’s what the Wuling is based on (a Suzuki Every) and it’s the worst handling car I’ve ever driven. Scary! It managed to combine very poor directional stability and very stiff, crashy suspension somehow. Poor reliability too. I shudder to think what its Chinese copy would be like. Hmmm, maybe that’s why Bertel resolutely refused to review the thing. He’s probably thinking “I’m not paid enough to do that!”

  • avatar
    APaGttH

    Same van lower price? Decontented van lower price? Suppliers squeezed al a Toyota to lower price? J D Power wrong in their estimate and there is more margin than realized?

    I would need more info than just GM lowered price, lower price is bad. If it were that simple, then Toyota is going off a cliff slashing the price of the Camry (but I don’t believe it is that simple).

  • avatar
    NormSV650

    What’s the revenue difference between selling a car there and NA? I put my $ on their market!

  • avatar
    NormSV650

    What’s the revenue difference between selling a car there and NA? I put my $ on their market! Sell, sell, sell!

    • 0 avatar
      MrWhopee

      Well, selling volumes shouldn’t be a corporate’s primary goal. After all, you can sell a lot of anything, no matter how bad or uncompetitive it is, if the price’s low enough. Witness HP’s $99 touchpad. Selling them at a profit, now that’s the challenge!

  • avatar
    Aqua225

    It’s like I’ve said before:

    All the people who needed to learn from the bankruptcy learned nothing because of the government bailout.

    GM had good volume before they bankrupted too.

    Why not just have the best car for the job?


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