NYT

G.M., Eclipsed at Home, Soars to Top in China

As General Motors fights for market share in America, its vehicles are selling briskly in China.

By DAVID BARBOZA and NICK BUNKLEY

Published: July 21, 2010

SHANGHAI — A decade ago, this city had five car dealerships selling Buicks, the top-selling General Motors brand in China. Today it has 27.

Ten years ago, Shanghai had five car dealerships selling Buicks, the top-selling General Motors brand in China. Today it has 27.

And the crowds of shoppers that fill many of them are young, ready to pay cash and not inclined to haggle over the sticker price.

As G.M. prepares a public stock offering later this year, China is emerging as a crucial piece of its appeal to potential investors — and a surprising down payment of sorts for American taxpayers, who would begin shrinking their 61 percent equity stake in the company.

In the first half of this year, G.M.’s China sales rose 48.5 percent over the same period last year, and for the first time ever, the automaker sold more vehicles in China than in the United States. Just 13 years after entering China, G.M. now says the country accounts for a quarter of its global sales — blistering growth that even G.M. did not expect this soon.

“China’s a big piece of the value of the company,” said Stephen J. Girsky, G.M.’s vice chairman for corporate strategy and business development. “And since we pull cash out of China, it helps fund investments in other parts of the company as well.”

Analysts estimate G.M. is worth $50 billion to $90 billion, with China accounting for about $15 billion of that total. The United States government converted about $43 billion of aid to G.M. into its equity stake, which is expected to be sold off over time after the company is publicly traded. A valuation above $70 billion or so would allow the government to earn a profit on its stake.

Through joint ventures with China’s S.A.I.C. Motor Corporation and other local manufacturers, G.M. is this country’s largest vehicle manufacturer, accounting for about 13 percent of the nation’s fragmented car market. Its product line aims to cover the broad spectrum of needs, like the $5,000 Wuling Sunshine, a barebones minivan wildly popular in rural areas, and the luxurious Cadillacs that can be seen in the wealthy neighborhoods of Beijing.

This week, G.M. announced plans to create a seventh brand to sell small passenger cars. In the United States, G.M. is down to just four brands, after shedding Pontiac, Saab, Saturn and Hummer during its bankruptcy.

“This is not some sort of flash-in-the-pan investment strategy,” said Michael Robinet, an analyst with the research firm IHS Automotive. “During the bankruptcy process, G.M. China was the beacon in the night that G.M. always had in its back pocket, and China will be a vital cog in G.M.’s machine going forward.”

G.M. said it earned about $400 million from its China joint ventures in the first quarter of this year, when it earned a total of $1.2 billion outside of North America and Europe. Its total corporate profit for the quarter was $865 million because of losses and other costs elsewhere.

While GM’s fast-growing China operations are helping to offset the automaker’s problems in the United States, it ultimately will need to do better on its home turf to restore its financial health. On that score, G.M. earned a first-quarter profit of $1.2 billion in North America, after losing $3.4 billion the previous quarter, but its market share in the United States so far this year is down from 2009. Analysts said G.M.’s overall prospects still hinge more than anything else on its North American operations being healthy, because that is where it can generate the most income.

The company’s success in China has been helped by the fact that Chinese consumers do not have the skepticism about G.M. that is commonly seen in the United States. In China, many shoppers know little about cars and go to a dealer for guidance.

“What we offer is accepted at face value,” said Kevin Wale, the president of G.M. China. “We don’t carry any baggage, basically. We get treated for what we deliver.”

G.M. officials say no American taxpayer money has been used to expand in China, though a Chinese government stimulus program that encouraged sales of clean vehicles and helped farmers and other rural residents buy vehicles has fueled consumer demand here.

Buick is the company’s star. Favored by China’s last emperor, Buick is perceived as sumptuous and stylish, a contrast with its staid image among many Americans. G.M. sold nearly half a million Buicks here last year, almost five times the brand’s sales in the United States.

“I was so fascinated by the shape of this car,” said Xu Tianpei, who bought a Buick Regal at the Yongda dealership in Shanghai for 230,000 renminbi ($34,000), including taxes and insurance. “

Shen Hui, the general manager at the Shanghai Yongda Buick dealership, said discounted prices were a rarity because of the psychology of the Chinese car market, which for many years evolved around scarcity.

“People will not buy if the price is discounted because they think it will fall even further later on,” he said. “But when there is no discount and tight supply, they will worry that there won’t be any cars left.”

G.M. expects to sell more than three million cars and trucks in China annually by 2015; from January to June of this year it sold 1.2 million vehicles, versus 1.08 million in the United States. G.M.s sales in China in the first half of 2010 were quadruple those of the Ford Motor Company.

G.M. has been a part of the American industrial landscape for more than a century, but it has been in China only since 1997.

Still, that was early in the development of China’s consumer market for cars and trucks, which has given G.M. an advantage over rivals that only began arriving after it became clear how quickly demand was rising.

G.M. has for years been heavily focused on investing in China and other emerging markets, and it has been introducing some vehicles, like the Buick LaCrosse and Chevrolet Cruze sedans, in China before the United States and other countries.

In addition, G.M. has greatly enlarged its engineering and design work force in China. It is building the country’s largest proving grounds and broke ground this week on a $250 million advanced technology center to research batteries and other alternative energy sources.

G.M.’s hourly work force in China has grown to 32,000 people at 10 factories, including its joint ventures, while its American operations have shrunk to 52,000 hourly employees from a peak of 468,000 in 1979.

Tim Dunne, director of global automotive operations at the research firm J. D. Power & Associates, said China’s huge population did not guarantee success for automakers but that G.M. had been done well because of its focus on meeting consumers’ tastes.

“You’re talking about one of the most competitive markets in the world,” Mr. Dunne said. “They’ve surpassed my expectations. They marshaled resources into China and made sure they did it the right way.”

Mr. Wale, the president of G.M. China, admittedly has very different concerns from his counterparts in Detroit. As the company’s sales were falling 30 percent in the United States in 2008 and 2009, they were surging 67 percent in China.

But while rapid growth is the better of the two problems to have, the consequences of any missteps in China can reverberate throughout G.M. worldwide.

“If you’re not ready and you miss the market growth, then you miss it for a long time,” Mr. Wale said.

Ford Shifts and Gains Ground in Asia

By KEITH BRADSHER and VIKAS BAJAJ

Published: March 30, 2010

CHONGQING, China — The sprawling Ford assembly plant here runs two shifts a day every day except Sunday, with workers putting in as many as 10 hours a day. Employees take turns having lunch so production almost never stops at potential bottlenecks, like the building where cars are painted.

Ford is pursuing a strategy of designing smaller, more fuel-efficient cars that are popular in Asia, while exiting luxury markets.

The plant, which opened in two stages over the last seven years and is one of the company’s newest and largest, underscores Ford’s growing focus on Asia. Long an also-ran here, far behind General Motors and Asian and European competitors, Ford is moving to change that. In addition to running its Chinese operations flat-out, it is rapidly expanding in India and scaling back in the luxury market, particularly in Europe.

The latest evidence of the shift came on Sunday as the company sold its Volvo Cars subsidiary to Zhejiang Geely of China.

“I don’t think it’s so much catching up as growing the business,” Alan R. Mulally, Ford’s chief executive, said in an interview during a visit to New Delhi earlier this month, while acknowledging that in Asia, Ford “started a little later than some of our competitors.”

The growing perception now among auto industry executives and analysts is that Ford is finally gaining ground in Asia — with a stronger brand and new models, though sales growth has been limited so far by shortages of manufacturing capacity.

“It was muddling along and now they’ve got traction, and what do they do, they push it at the plant level,” in an attempt to keep up with demand, said Michael Dunne, an independent auto analyst based in Bangkok.

Whether Ford will gain on its American rival G.M. — which outsells it by more than two to one in Asia — is far from certain. Industry experts say that the company still has to overcome a legacy of underinvestment in its Asian manufacturing operations.

Ford — and to some extent, G.M. as well — has benefited from Toyota’s series of recalls. The recalls have received heavy coverage in the Chinese media and have hurt demand for all Japanese car brands, not just Toyota, said Tong Shiping, the chief executive and founder of China Auto Logistics, a Chinese online retailing and finance company based in Tianjin.

“I am not that optimistic that it will be over in just three months,” said Mr. Tong in a phone interview, referring to the damage to Japan’s automakers’ sales, “it takes about a year.”

Ford’s new Asian strategy contrasts sharply to the course taken by General Motors, which until very recently had lapped Ford in Asia again and again, particularly in China. But in December, G.M. announced that it was selling half of its India operations to its Chinese joint venture partner, the Shanghai Automotive Industry Corporation; G.M. and S.A.I.C. plan to invest together in expansion in India, but have not yet disclosed details.

G.M. also sold 1 percent of the Chinese joint venture to S.A.I.C., which raised its stake to a majority of 51 percent.

G.M. has separately redoubled its bets on the European market — reversing its decision last autumn to sell its main European subsidiary, Opel. The company has committed itself to pouring several billion dollars into streamlining and upgrading Opel’s operations.

G.M. officials have repeatedly insisted that they remain committed to the Asian market, and that they can both rebuild Opel and grow in Asia.

For Ford, the sale of its Volvo Cars to Zhejiang Geely will provide little relief to its overworked factories in Asia.

The Chongqing factory produces the S40 and S80 for the Chinese market, in addition to the Ford Focus, S-Max and Mondeo and the Mazda 3. With Zhejiang Geely intent on expanding sales in China, Ford agreed to continue supplying both models from here while Geely finds ways to manufacture them itself.

Ford reaped enormous profits from the sport utility vehicle boom in the United States after the introduction of the Ford Explorer in 1990, but used a large chunk of its profits to make ill-fated acquisitions like Volvo, Land Rover and Jaguar.

Ford is trying to be more strategic now, responding to persistent high oil prices by pursuing a global strategy of designing smaller, more fuel-efficient cars while exiting luxury markets.

That strategy fits well in China and India, which are Asia’s two main emerging markets. Fuel-sipping cars predominate in both countries, mainly because of steep taxes in both on midsize and large cars.

At a car dealership on the outskirts of Mumbai on a recent afternoon, customers milled around the new Ford Figo, a four-door subcompact with a hatchback.

Gautam Modi, the dealer, and his staff said that they had a hard time keeping up with demand for the $7,700 car, after 85 test drives by potential customers the first weekend, more than Mr. Modi could remember for any other new Ford car.

R. Vishweshwaran, a software salesman, was waiting to test-drive the car with his wife and 5-year-old son. He said that a few years ago, he would not have considered a Ford because the company made big cars with poor gas mileage, a combination that struck Mr. Vishweshwaran, 35, as a product of Ford’s “very American mentality.”

“This is a good move for Ford,” he said about the Figo. “I don’t know why they didn’t launch it three or four years back.”

Ford is working hard to increase output in Asia. Last autumn, Ford finished doubling the capacity of its assembly plant near Chennai, formerly Madras. Ford opened a new engine factory nearby over the winter so as to stop relying on imported engines. And the company is now quietly preparing to increase output further by adding a second shift of workers at the Chennai assembly plant. On a recent afternoon here in Chongqing, a dozen power shovels and large dump trucks tore away a small hill six miles from Ford’s current assembly plant. They were leveling the site for the construction of a second large Ford assembly plant. But the second factory is not scheduled to open until the first quarter of 2012.

Ford previously took a more cautious approach, only to be caught flat-footed again and again as markets across Asia grew. The Chinese market for family vehicles has surged nearly sevenfold since 2000, to 13 million last year, while the slower-growing Indian market reached 2.1 million last year, according to J. D. Power and Associates.

Though Ford’s plant here in Chongqing is relatively new, it looks old, a sign of extremely heavy use. The yellow safety lines along the assembly line to mark where workers can walk safely, usually bright and fresh in Ford factories, have been worn and scuffed until faint.

Cherry Li, a 24-year-old quality engineer, has been putting in six-day weeks here in this factory in western China since the start of last year. (She had just six days off for Chinese New Year, when most workers expect two weeks.) “On Sundays, I sleep late,” she said.

Ford is considering whether to add a third shift to the factory here in Chongqing, which would allow the company to cut back the current two shifts to five days a week instead of six and start running the factory on Sundays as well. Long hours for Ms. Li and other workers have already allowed the company to cut the waiting lists for cars at Ford dealerships in China to 30 days, from 60 days last summer, said Nigel Harris, Ford’s general manager of sales in China.

“When you’re running 60-day waiting lists,” he said, “you get unhappy customers.”