Geely Down, GM Up. And Why Favoring Foreigners Is Good For The Chinese Government

by Bertel Schmitt

November 10th, 2011 6:12 AM

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geely down gm up and why favoring foreigners is good for the chinese government

We have been pointing it out for quite a while: Something counter-intuitive (and counter- conventional wisdom) is happening in China: While the growth of the general market is slowing down, it is at the expense of the Chinese brands. The foreigners are doing fine.

Nothing illustrates this better than the story of the two Gs, Geely and GM. In October, the growth of the Chinese market effectively came to a halt.

How did the two Gs fare during that braking maneuver?

Geely’s Chinese car sales fell 10.3 percent in October, compared to October 2010, Reuters reports. In the first 10 months of 2011, Geely sold 329,110 vehicles, up 4.5 percent from a year earlier.
In the same October, GM China’s sales were up 10.4 percent. During October, 2011 sales by GM in China surpassed 2 million, reaching 2,113,274 units . GM China’s Kevin Wale expects an increase of 10 percent by the end of the year.

The two Gs reflect a trend that has been evolving for a while in China: The foreign joint venture brands are getting stronger, the homegrown brands are losing share. The share of homegrown brands stands at an all-time low of 29 percent for the first 10 months of the year. The Chinese government has acknowledged that fact and is exhorting its manufacturers to speed up development in order to catch up with foreign brands and technology.

The Chinese government however is in a very interesting position: The joint ventures with foreigners are mostly in the hands of state owned enterprises. The homegrown brands are more in the hands of the independents. When it comes down to brass tacks, the Chinese government will favor its own enterprises, and oddly enough, that means favoring foreigners over pure Chinese brands.

PS: One thing should be kept in mind when comparing percentage numbers and when announcing the end of Chinese growth. We are now comparing with a last quarter of 2010 which was on an absolute tear. The Chinese market had been up 27 percent in October 2010. In the same month, GM China had been up 20 percent.

#BertelSchmitt #China #Geely #GM #October2011 #Sales

Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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6 comments

Patrickj on Nov 10, 2011

My guess is that the Chinese government, for reasons of both infrastructure and social control, is not ready to put 1.5 billion people on wheels. Discouraging the sale of inexpensive cars that are far lower in crash, emissions, and quality standards of areas like Japan and North America is a useful indirect way to do that.

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- Imag on Nov 10, 2011
  
  The Chinese government has not seemed to shy from growth recently. My guess: Automobiles are still a luxury purchase in China, and Chinese brands to date do not have the same cachet as foreign brands. Indians aren't buying the Nano because they want to show they "have arrived" by buying something more prestigious. The Chinese may be following a similar purchasing pattern.
  
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- Patrickj on Nov 10, 2011
  
  @imag I certainly see the pattern of buying prestige among African immigrants in my own community. The majority drive Mercedes in varying states of decrepitude. A primer and Bondo-covered ML320 is far preferred to a nicer and cheaper to buy/run Durango, Tahoe, or Explorer.
  
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- TonyJZX on Nov 10, 2011
  
  @imag well there's strange stories about brand allegience everywhere one i find funny is certain foreigners love Toyota Camrys... in their country a Camry is a large luxury car so they've "arrived" once they've bought a $5k second hand Camry in the new land you can imagine that they send pictures back of their new luxury Camry to their folks...
  
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- Athos Nobile on Nov 11, 2011
  
  @imag Patrickj and TonyJZX make some interesting points. Most of the people that come from my country to "down here" usually go and get a Toyota (most of them keep their Blackberry "fever" too). In Venezuela, the Corolla is the "market's most aspirational car" which is something to laugh or cry about, depending on the perspective. Some get a Camry, some a Corolla or an SUV. Where I work, many workers are from another Pacific-located country, and according to the locals, they "compete" to see who was the biggest Toyota SUV: Hilux, Prado, LC whatever. I think that kind of purchase is a direct reflection of the things that people are "lacking" in third world countries and their cultural reference points. In my case, I drove 4 cyl FWD cars for almost 15 years, and despite the high petrol prices, it's a V6/I6 or a V8 RWD what would do it for me. Currently I'm being kindly chauffeured by the public transportation, which WORK!!!. I would also like to hit the racetrack. The thing here is choice. And that is what that people don't seem to realize. In the 1st world you can have whatever car you like, as long as you can afford it. Edit: I forgot to mention that showing off to your 3rd world friends you have "arrived" (whatever that means) is that it may open the door to some unwanted risks.
  
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Ronnie Schreiber on Nov 10, 2011
The Chinese government however is in a very interesting position: The joint ventures with foreigners are mostly in the hands of state owned enterprises. The homegrown brands are more in the hands of the independents. When it comes down to brass tacks, the Chinese government will favor its own enterprises, and oddly enough, that means favoring foreigners over pure Chinese brands. The basic need for commerce in any society is that contracts will be enforced. When your partner, your customer, your supplier, your competitors and the judge who will adjudicate your contract disputes are all the government, how can you be sure that you'll be treated fairly? If I'm not mistaken, while Li Shufu is a Chinese Horatio Alger story and Geely is privately owned, some of Geely's subbrands are built in factories that are jointly owned with local and provincial governments. It's probably impossible to do business in China without having to work with a government owned business in one form or another.

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