March 17th, 2009
03:02 AM GMT
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SHANGHAI, China - When Xiao Hongjun, a 38-year-old engineer, went looking to buy his first car he knew exactly what he wanted: a Buick.

GM China President Kevin Wale, left, attends the unveiling of the Volt sedan in Shanghai last year.
GM China President Kevin Wale, left, attends the unveiling of the Volt sedan in Shanghai last year.

"Because from my heart, I like American goods. Buick is a very good brand," he said shortly before paying almost $20,000 cash for a new car.

Xiao is not alone. First-time car buyers in China are driving this market. Helped by the government's cut in sales tax on smaller models and vehicle subsidies for farmers, sales surged 25 percent in February compared to the same time last year.

And the best selling brand in China: General Motors. The struggling American giant has held that position for the past four years. GM China President Kevin Wale is expecting another good year.

"The market unlike the rest of the world looks like it's going to be stable, and in fact we think it is going to grow a little bit, between 5 and 10 percent. We've been able to start the rollout of our new product introductions, and we've got a lot of momentum."

In many ways GM China is everything GM North America is not.

"GM's operations in China are flexible and efficient and profitable. And the things it does in China are applicable to its North American operations which are right now the opposite - they're inflexible, inefficient and losing money," says John Casesa, an auto industry analyst in New York.

He estimates that in a good year, GM makes around a billion dollars profit in China, and not only has that kept the company out of bankruptcy in recent years but makes a strong case to U.S. policy makers that the company is worth saving.

"Its Chinese experience underscores that this company, under the right conditions, can be very competitive, be competitive globally in markets outside North America and position itself for the best growth opportunities in places like China, India, and Brazil."

GM China operates new plants, wages are low, and there are no financial liabilities like health plans or pension schemes that are the main issues facing the operations in North America. But Wale argues there's more to the company's success than that.

"The secret to winning in any marketplace is to provide the products the customers want to buy, which is why we say we listen very closely to what the market wants, and we react very quickly to put it in place."

Analysts believe China will become the world's biggest car market within the next five years, and if the big auto makers are to survive, they'll need to be successful here, and General Motors is well placed. It just needs to ride out the great recession.

Xiao, the new car buyer, has no concerns.

"I am confident in America. I think that the financial crisis will pass quickly."

Watch my report on what's driving GM's success in China.

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