General Motors will invest over $US3 billion in China over the next three years to more than double capacity, intensifying a battle with leader Volkswagen in an increasingly profitable market.
GM, runner-up to Volkswagen in the world’s fastest-growing car arena, will introduce almost 20 models over the coming three years in a country that should become its number two market in 2004, executives told the Reuters news agency on Monday.
Brushing off signs the market may slow this year as the government curbs easy lending to cool overheated parts of the economy, GM reportedly said Chinese growth would still outpace more developed markets.
A slowdown – after 45% growth in car sales in the first quarter – comes on top of concerns over a margin-sapping glut and a price war, the report noted.
Reuters said multinationals plan to spend about $13 billion to build capacity to make some six million cars annually in coming years.
“If we become the largest car seller in China, we’ll have to displace some people,” GM China head Phil Murtaugh told Reuters with a laugh, referring to Volkswagen. “There’s no reason for concern about our longevity,” Murtaugh added ahead of this week’s Beijing motor show.
Reuters said Volkswagen commands more than a third of China’s car market, compared to GM’s roughly 19% at the end of 2003 but GM hopes to ramp up annual output to 1.3 million units by 2007 through expanding existing factories and building new plants.
It reportedly has said it will begin assembling the Cadillac line – its premier product – in China this year.
But Reuters noted that VW said last year it too would double China production, to 1.6 million vehicles, over a similar time frame.
The news agency noted that GM has downplayed its rivalry with Volkswagen in the past, saying it also has to compete with the likes of Ford and Nissan Motor.
GM sold about 70% more cars in China in the first quarter than in the year-earlier period, topping 122,000 units while its sales at home in the United States over the same period grew just 5%, Reuters said.
According to the report, analysts now want to see how government curbs on investment in sectors such as steel, cement and cars would affect the country’s burgeoning vehicle industry.
In the first four months, overall sales growth decelerated in China to 56%, or 178,000 vehicles, after almost doubling to about two million units in 2003, Reuters added, noting that multinationals have only just begun to offer car loans to individuals via financing firms.
Murtaugh reportedly conceded car loans growth in China in the past 30 days had slumped to about 10% from 80%, possibly due to tightening measures, but gave no more specific timeframe.
Customers may be also holding purchases in anticipation of major price cuts to be announced during the Beijing motor show, Reuters noted.
“To be honest, margins in China are going to come down. But I’m not sure it’s accurate to call it a price war,” Murtagh told the news agency.
Reuters said prices across the board have come down about 10% over the past two to three years, closing in on international prices due to reduced costs, lower import duties and increasing economies of scale, and GM cut prices in May on two of its core models – the Buick Regal sedan and the GL executive wagon – by as much as 11%, anticipating lowered import tariffs next year.
The report noted that the Regal sells in China for about $40,000, which is around $15,000 more than in the United States – largely because of taxes in China and heavy incentives in the United States.
Reuters said that GM’s renewed efforts in China are easy to understand after profits from its Chinese joint ventures nearly quadrupled to $162 million in the first quarter.
If sales growth and margins continue at those rates, China would produce about a quarter of the group’s $4 billion in profits forecast by analysts for this year, the report noted.