GM Puts a Tiger in Their Tank

Frank Williams
by Frank Williams

Imagine an alternate reality where General Motors operates state-of-the-art factories with flexible manufacturing systems allowing production of vehicles with different platforms on the same production line. Where they operate with a lean manufacturing philosophy that encompasses purchasing, logistics, manufacturing, sales and quality management. Where they use non-union labor to keep costs down and profits up, avoiding the legacy costs unions bring to the table. Where sales are up more than thirty percent. Huān yíng guāng lín to China.

In 1997, GM entered a 50-50 joint venture with Shanghai Automotive Industry Corp. (SAIC) to form Shanghai General Motors (SGM) Co. Ltd. At the time, it was the largest single foreign investment in China in decades; many analysts considered it a high-risk undertaking. They’ve since been proven wrong, as the partnership continues to prosper. Currently, SGM produces 29 products under five main brands: Chevrolet, Buick, Cadillac, Saab and Opel. Additionally, they manufacture and sell ACDelco parts and Wuling minivans and pickups.

SGM also operates China's first automotive engineering and design joint venture: the Pan Asia Technical Automotive Center (PATAC). PATAC handles all the vehicle design, development and testing for SGM and their domestic joint ventures. It has more than 1100 salaried employees, many of whom have masters and/or doctorate degrees. Their emission testing facility is one of 11 certified by the Chinese EPA and can test to European or American standards (including California’s stringent super-low emission standards).

GM has invested billions of dollars in their booming Chinese operation. If anyone has any lingering doubts about GM’s commitment to this market, the American automaker has just announced their plans to mass produce hybrid cars in China by 2008. While they’ve eschewed hybrid cars in the US (focusing instead on pickups and the Saturn Vue), the company’s PR flacks state "the GM Hybrid System is flexible and cost effective and is ideal for high volume global applications, which include its introduction in China in 2008." So far, The General hasn’t indicated any plans to expand its hybrid market in the US. But few industry observers would be surprised to see hybrid powertrains– or even complete hybrid-powered cars– coming through customs shortly after their Chinese debut.

So what does GM get in return for their investment? They have access to what is arguably the fastest growing automobile market in the world; sales jumped 36.7% in the first three quarters of this year. GM’s leadership is acutely aware their Shanghai goose is producing dozens of golden eggs, and they’re doing everything they can to keep it healthy. During a visit to Shanghai earlier this month, Rick Wagner stated, "we are willing to invest ahead of demand here because we are very bullish that demand is going to keep growing here."

All is not sunshine and rainbows, though. SAIC is using the expertise and experience gained from their joint ventures to launch their own premium brand, Roewe, at this month’s Beijing Auto Show. Their first offering, the Roewe 750E, is based on the Rover 75 sedan. They will market it as a premium brand in direct competition with Cadillacs, Saabs and top line Buicks. SAIC plans to launch 30 new models under the Roewe brand between 2006 and 2011, and hopes to produce 120K Roewe cars in 2007.

Where does this leave GM? It’s too early to tell. Under Chinese law, foreign automakers have to be in a joint venture agreement with a domestic company. That means GM can’t sever their ties with SAIC– unless it hooks-up with another Chinese manufacturer. SAIC says it has gleaned "rich experience and resources in every field" from its work with GM. GM says it “understands" SAIC’s "desire for further growth" and is confident "SAIC recognizes that the success of both companies in the China market is closely linked to the success of our joint ventures." Industry analyst Michael Dunne states, "the Chinese formed joint ventures for one purpose: to learn how to do it themselves one day. That day is here."

In the short term, GM will feel very little impact from SAIC’s decision. Cadillac is one of the top brands in China, on par with (or maybe even more desirable than) Mercedes. Buick has been on the Chinese market for almost 10 years. Both marques have solid reputations as prestige brands, so it may take Roewe a while to catch up. GM seems to have the inertia they’ll need to survive in the Chinese market.

However they can’t drop their guard. They have to keep up with market trends and keep manufacturing costs in check. And whatever else they do, they must avoid the brand dilution that plagues them in other markets. Hopefully, GM’s China connection will provide the capital it needs for a corporate turnaround. In fact, the future of GM’s North American operations may depend on it.

Frank Williams
Frank Williams

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  • David C. Holzman David C. Holzman on Nov 17, 2006

    Jerry Weber: I have one problem with investing in China. It is a military dictatorship that practices capitalism. If there is ever a showdown between freedom for her people and continued dictatorial rule, I think the capitalism part could go down the drain. The other fear is that if the US and China get in a military showdown over any number of far eastern north korea, japan. taiwan, sinking one of our ships etc. all trade could stop between the two countries. Will it happen? It’s out there like a smoldering fuse and could go either way. I think the more trade there is between countries the more such countries will have to lose by engaging in military adventures against us, or any other trading partner. I think one of the best things we can do for world peace is to trade around the world. And I think the Chinese leaders are much too smart to abandon capitalism. It was their early, though gradual adoption of capitalism which has made that country vibrant, compared, say, to most of the former Soviet countries.

  • Wsn Wsn on Nov 18, 2006
    I guess you would then agree that the US has the right to limit Chinese import if deemed necessary? Or making Chinese importers pay for access? I think it’s a splendid idea! I like your line of thought! 1) The USA does have the right and force to limit import from any country, China included. 2) Importer from any country to any country does pay, one way or another. The so called "fair trade" is ultimately a balance of powers. Right now, the United State military is far superior than that of the P.R. China. Thus, I have to say I don't see anything unfair to the States. Impose anything and what can China do? Eventually, this is not a conflict between China and the US. It's between Americans who benefit from trading with China and those who lost jobs because of it. The force that keeps the trading is comprised of Walmart, Boeing, GM, etc. But certainly not the Chinese government.
  • 3-On-The-Tree 2014 Ford F150 Ecoboost 3.5L. By 80,000mi I had to have the rear main oil seal replaced twice. Driver side turbo leaking had to have all hoses replaced. Passenger side turbo had to be completely replaced. Engine timing chain front cover leak had to be replaced. Transmission front pump leak had to be removed and replaced. Ford renewed my faith in Extended warranty’s because luckily I had one and used it to the fullest. Sold that truck on caravan and got me a 2021 Tundra Crewmax 4x4. Not a fan of turbos and I will never own a Ford again much less cars with turbos to include newer Toyotas. And I’m a Toyota guy.
  • Duke Woolworth Weight 4800# as I recall.
  • Kwik_Shift_Pro4X '19 Nissan Frontier @78000 miles has been oil changes ( eng/ diffs/ tranny/ transfer). Still on original brakes and second set of tires.
  • ChristianWimmer I have a 2018 Mercedes A250 with almost 80,000 km on the clock and a vintage ‘89 Mercedes 500SL R129 with almost 300,000 km.The A250 has had zero issues but the yearly servicing costs are typically expensive from this brand - as expected. Basic yearly service costs around 400 Euros whereas a more comprehensive servicing with new brake pads, spark plugs plus TÜV etc. is in the 1000+ Euro region.The 500SL servicing costs were expensive when it was serviced at a Benz dealer, but they won’t touch this classic anymore. I have it serviced by a mechanic from another Benz dealership who also owns an R129 300SL-24 and he’ll do basic maintenance on it for a mere 150 Euros. I only drive the 500SL about 2000 km a year so running costs are low although the fuel costs are insane here. The 500SL has had two previous owners with full service history. It’s been a reliable car according to the records. The roof folding mechanism needs so adjusting and oiling from time to time but that’s normal.
  • Theflyersfan I wonder how many people recalled these after watching EuroCrash. There's someone one street over that has a similar yellow one of these, and you can tell he loves that car. It was just a tough sell - too expensive, way too heavy, zero passenger space, limited cargo bed, but for a chunk of the population, looked awesome. This was always meant to be a one and done car. Hopefully some are still running 20 years from now so we have a "remember when?" moment with them.