GM Puts a Tiger in Their Tank

Frank Williams
by Frank Williams
gm puts a tiger in their tank

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.

Join the conversation
2 of 55 comments
  • 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.

  • Paul Taka Hi, where can I find 1982 Honda prelude junkyards in 50 states
  • Poltergeist Make sure you order the optional Dungdai fire suppression system.
  • Prabirmehta I charge my EV at home 100% of the time. The EV is used for in-town driving and the gas guzzling SUV is used for out of town trips. This results in a huge cost saving and rare trips to the gas station.
  • Conundrum Three cylinder Ford Escapes, Chevy whatever it is that competes, and now the Rogue. Great, ain't it? Toyota'll be next with a de-tuned GR Corolla/Yaris powerplant. It's your life getting better and better, yes indeed. A piston costs money, you know.The Rogue and Altima used to have the zero graviy foam front seats. Comfy, but the new Rogue dumps that advance. Costs money. And that color-co-ordinated gray interior, my, ain't it luvverly? Ten years after they perfected it in the first Versa to appeal to the terminally depressed, it graduates to the Rogue.There's nothing decent to buy on the market for normal money. Not a damn thing interests me at all.
  • Inside Looking Out It looks good and is popular in SF Bay Area.