GM Races Ahead in Mini-Van Market (China)

South China Morning Post ^ | August 31, 2009 | Bloomberg

[PGR88]

When Han Yanmin replaced his motorcycle with a low-cost minivan, he rejected Chinese carmakers and opted for General Motors. "GM technology makes it very reliable," Mr Han, a 32-year-old Beijing deliveryman, said while waiting to unload his nine-month-old Wuling Sunshine at a vegetable market. "All the folks in my village have bought Wulings."

Detroit-based GM, majority-owned by the United States government after emerging from bankruptcy, has boosted vehicle sales on the mainland 43 per cent this year, helped by state subsidies and prices starting at 25,800 yuan (HK$29,278). That is less than 20 per cent the cost of a Chevrolet Silverado pick-up, GM's best-selling model in the United States. The company, maker of about one in every two minivans sold in China, has started exporting the one-litre engine vehicles to other emerging markets.

"You can make money out of minivans - if you sell enough of them," said Klaus Paur, a director at market research company TNS China. "[In China, minivans are] selling really, really well this year."

GM expects to sell more than 800,000 minivans in the country this year, a sixfold increase from 2003, the first full year of production for SAIC-GM-Wuling Automobile. The carmaker opened the venture, based in the southwestern city of Liuzhou, after seeing a market for cheap, multi-purpose vehicles, GM China president Kevin Wale said.

"In China, people use cars for small business and at the same time for family transportation," he said. "In the US, they are generally into comfort and rarely buy a passenger car with a commercial utilisation."

GM no longer makes minivans in the US, focusing instead on crossover and sports-utility vehicles. Minivans account for about 4 per cent of vehicle sales in the US this year, according to Autodata Corp. SUVs make up 28 per cent.

The carmaker could not sell Wulings in the US or Europe without significant upgrades to meet safety and emissions standards, said John Zeng, an analyst at IHS Global Insight. GM China said it had not put one through a US safety test. Some models have air bags.

The Wuling Sunshine, the best-selling minivan in China, has a wheelbase of 2.5 metres. That is 50 centimetres shorter than the US$26,805 Honda Motor Odyssey, the most popular in the US. The 2010 Odyssey gets 17 miles to the gallon in city driving. The Sunshine gets 47 miles to the gallon, Wuling says.

"It's awesome," Lu Zongbo, 28, a Beijing vegetable seller, said of his Sunshine. "It never lets me down."

Wuling's three plants can make 900,000 vehicles a year. Its 48 per cent share of the Chinese minivan market is double that of its nearest rival, Sichuan-based Chongqing Changan Automobile.

That domination keeps Ford Motor, which makes sedans with Changan, and Volkswagen, the largest overseas carmaker in China, out of the nation's fastest-growing vehicle segment. Minivan sales jumped 60 per cent in the first seven months to 1.09 million, almost double the growth rate for the overall passenger-vehicle market, according to the China Association of Automobile Manufacturers.

Total vehicle sales, including trucks and buses, rose 23 per cent as China surpassed the US to become the world's biggest car market. GM's total US sales have fallen 38 per cent through July.

"It's not that other foreign carmakers don't want to sell minivans, they just can't," said Yale Zhang, Shanghai-based director of vehicle advisory company CSM Asia. "There's simply no point pursuing it because the volumes and the economies of scale would be too small."

Minivans likely had margins as low as 1,000 yuan each, Mr Zeng said. GM shares Wuling's profit because it only owns 34 per cent. Shanghai government-controlled SAIC Motor Corp, the biggest domestic carmaker, holds 50.1 per cent, and Liuzhou Wuling Motors, based in Guangxi, owns the rest.

GM made "reasonable returns" from minivans, Mr Wale said without elaborating. The carmaker would be "happy" to own more of Wuling if either partner wanted to sell, yet no talks were under way, he said. Overseas carmakers can operate plants in China only through ventures with local companies.

Earlier this month, GM also started shipping Wuling minivans to South America, the Middle East and North Africa, where it will sell them as Chevrolets.

The carmaker is looking for new overseas markets after first-half sales in North America fell about 40 per cent, forcing its predecessor to shutter businesses and enter bankruptcy.

The carmaker, which sold its first vehicle in China in the 1920s, also builds passenger cars in the country through Shanghai GM. That venture, equally owned with SAIC, boosted sales 26 per cent in the first seven months to 345,332, led by demand for the Buick Excelle, the nation's No2 selling passenger car. Hyundai Motor's Elantra Yuedong tops the rankings, with Volkswagen's Jetta in third.

GM's Asia-Pacific sales increased 22 per cent in the first half, the only region to show an increase.

All of its operations outside North America are run from Shanghai by Nick Reilly, who was promoted from Asia-Pacific chief on August 1.

"GM has been very smart in developing markets," said Michael Dunne, managing director of JD Power China.

"Global carmakers have been fearful of what Chinese carmakers can do when it comes to building small cars at a low price, but GM's got out in front of this."

Back in Beijing's vegetable market, Mr Han said he liked his minivan for its dependability and big back door, which makes it easy to load.

The chance to shelter from the city's chilly weather is also a plus, he added. "It was so cold riding a motorcycle. It's nothing like that in my van," he said.

[mylife]

[Parley Baer]

Liberals are now running GM and the last couple of threads prove the point. Chrysler cannot be far behind.