It’s not quite the bursting bubble that had been prognosticated by many through the last decade, but there is no doubt that “the world’s largest auto market sputters in a slowing economy,” as Reuters writes.
“Be careful what you wish for” is not the Chinese proverb it often is made up to be, but it applies: The red menace of Chinese car exports, longer predicted than the bursting bubble and likewise for long a chimera, finally appears to get going. The sputtering Chinese home market provides the push to find better fortunes abroad, but General Motors broke the dam that held Chinese exports back.
For some Chinese carmakers, writes Reuters, “exports, mostly to emerging markets such as Ukraine, Indonesia and Sri Lanka, may offer some relief from weak sales at home.”
Indeed, while Chinese automobile sales were up a little less than three percent in the first half of the year, China’s car exports rocketed up by 28 percent to 487,900 units, says Xinhua, citing data the data provided by the China Association of Automobile Manufacturers (CAAM.)
Geely, which owns the Swedish brand Volvo, “posted an 8.7 percent increase in first-half profit,” says Reuters, “but, while it sold 9 percent fewer cars in China, its exports trebled to 40,061 vehicles.” Geely is set to sell 90,000 cars outside of China this year, and wants to triple this to 300,000 cars sold abroad by 2016. China’s Great Wall is another Chinese company with international ambitions. It has established a plant in Europe’s soft underbelly Bulgaria, and made quite a splash on Bulgaria’s sales charts.
While all eyes are on China’s second-tier manufacturers, China’s juggernaut SAIC has for years quietly built bases abroad – with the help of its partner GM.
Two years ago, Chinese car exports were just a trickle and were far outnumbered by high value imports, notably from Germany. One car manufacturer started to change the trade imbalance: General Motors. GM started exporting the Made-in-China Chevrolet Sail. First to South America, other markets like Africa, Middle East and Eastern Europe followed.
“If this helps GM stay solvent and profitable, more power to them!” TTAC correspondent SVX perlie wrote back then. Not quite. GM had just been bailed out in order to protect jobs in America, not to create jobs in China, not to undercut the already feeble chances of American products in export markets. Remember: When a car is made by a Chinese joint venture, at least half of the profits (and initially all of the cash) remain in China.
A few months after the Sail’s launch, success was reported. Said Reuters in early 2011:
“Foreign car makers now see China as a launch pad for exports, with General Motors blazing the trail with shipments of its Chevy Sail.”
“Analysts say early signs of success for the Sail will only encourage other car manufacturers to develop products in China and then use the country as a base for exporting elsewhere.”
GM’s support for China’s export machine dates as far back as the dark months of the end of 2009, when GM, financially over a barrel, cut a deal with SAIC, gave away the keys to the Indian market from which SAIC was effectively locked out, and even managed to lose its golden share in the Chinese joint venture.
Says the Wall Street Journal:
“GM also has tapped SAIC’s deep pockets. In 2010, the companies launched a joint venture in India, a market that GM couldn’t afford to tackle alone. The venture is GM’s only business in India, producing no-frills microvans with a goal of expanding into Southeast Asia and other emerging markets.”
Those no-frills microvans are Wuling Sunshines, rebadged as Chevrolets and not adding to the fame of American engineering. GM gets an even smaller share of whatever profits they produce: GM only holds a 40 percent share in the SAIC-GM-Wuling joint venture.
GM CEO Dan Akerson already has second thoughts of the deal and tells the Wall Street Journal:
“If we would have been flush with as much cash as today, maybe we would have gone a different way.”
So far, GM’s and SAIC’s Chinese exports at least carry an American badge to keep up appearances and at least a small part of the money in American pockets. How long is another question. SAIC has been casting longing eyes on GM’s distribution network, and “GM can ill afford to alienate SAIC, its main partner in a venture called Shanghai GM,” the Journal says. A fifth of GM’s profits came from China last year, and those who hold the purse strings …
China’s wishes already influence the cars we drive. Says the Journal:
“The next generations of GM’s Cadillacs will have softer corners, dashboards with more gadgetry and plusher rear seats. The U.S. auto maker is tweaking the iconic American brand to make it more palatable to Chinese buyers and GM’s Chinese partner, even though Cadillac hasn’t sold strongly here.”
Meanwhile, SAIC is coming to America. Says the Journal again:
“This summer, SAIC opened North American headquarters in Birmingham, Mich., just 20 miles from GM’s Detroit base. After years of explosive growth, China’s auto market is cooling off. Yi Lu, president of SAIC USA Inc., called the growing importance of selling cars abroad a “significant factor” in the decision to go to Michigan. SAIC currently sells no cars in the U.S.”
Be careful what you wish for.