General Motors‘ new China chief has downplayed concerns over the health of the relationship with SAIC Motor, insisting they are growing closer as they look to use their business model in southeast Asia to take advantage of demand for low-cost cars.
Bob Socia – GM China president since 1 October, said SAIC’s low-cost vehicle technology was important to the US automaker’s push into emerging markets, China Daily reported.
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SAIC’s technology for producing cars priced as low as CNY30,000 yuan (US$4,800) was especially critical to GM’s effort to come up with decent cars with a price tag acceptable to rising middle-class buyers in markets like China, India, and Indonesia.
“Products we’re producing out of our joint venture operations with SAIC serve up very well in emerging countries,” Socia, who is also GM’s head of operations in India and southeast Asia, said in Shanghai.
In China, he replaced Kevin Wale, who retired.
SAIC, China’s biggest carmaker, became a half share partner in GM India in 2010. It nearly reversed that in October by cutting the stake to 9%, a move widely seen as a possible chill in the relationship.
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By GlobalDataGM’s sales in India fell 21% year on year in the first half of this fiscal year (from 1 April). GM and SAIC also struggled to convert two low-cost small cars sold in China to right hand drive for India, delaying key products.
Socia and other GM executives who spoke with Reuters in Shanghai would not offer specific reasons for SAIC’s decision.
But they said the Shanghai-based state-owned automotive group would continue to help GM develop “value cars” for India and other emerging markets, although SAIC has announced plans to start making MG cars in Thailand with local company CP Group.
SAIC’s MG operation is separate from the joint venture with GM that builds and/or sells Buick, Cadillac, Chevrolet and Wuling models so the US company is is not involved in that deal.
“They (SAIC) are very active in strategic issues of the organisation; we have taken over operating control,” Socia said of GM India operations.
“I wouldn’t read too much into the equity share thing; we’re working very well and we will continue to work very well (with one another).”
According to Socia, GM and SAIC might take the same business model – combining their respective strengths to crack emerging market demand for low cost cars – to southeast Asia.
“The whole ASEAN arena is ripe for that same sort of conversation,” Socia said.
Of the fast-growing markets inside ASEAN, GM and SAIC are particularly interested in Indonesia and Thailand, he added.
Southeast Asia is dominated by Japanese automakers. In Indonesia, where they have over 90% of a market expected to generate 1m sales this year, GM is just re-starting local production and boosting its dealer count.
In the second quarter of next year, it plans to reopen an assembly plant near Jakarta, which it closed down in the mid-2000s. It sold 4,624 cars in Indonesia in the first 11 months of this year.
“It’s not that we cannot do it by ourselves,” Socia said. “We are studying all sorts of options,” including joining forces in Indonesia with SAIC.
GM wants to offer more products at low prices like the Spin sold in India which it plans to produce in Indonesia. Socia said the boxy people mover is “the type of product that we think could do well” in the country.
“But again you really have got to find that value proposition point” in order to compete with the Japanese and make inroads in Southeast Asia, he said.
As in India, GM is also likely to use the Wuling brand of cheap microvans it jointly produces and sells in China with SAIC to try and crack the southeast Asia market.
In China, the workhorse vans, which can also be used as private cars, sell for as little as CNY30,000 and could be the model frugal emerging middle-class buyers are looking for in Indonesia and elsewhere, Socia said.
As further evidence of GM and SAIC’s close relationship, Socia said the two companies are now buying more car components “together than ever before” to achieve cost savings from purchasing in greater volumes.
The pair have also just opened a new plant in the southern Chinese city of Liuzhou, where the Wuling brand is headquartered, and intend to open another plant in the southwest city of Chongqing to produce low-cost microvans.
“The relationships that we have with our partners I think are very good,” Socia said, referring to SAIC.
Socia said GM expects China’s demand for passenger cars and commercial vehicles to finally climb above 20m next year.
The overall market will likely grow “5% to 8%” in 2013 to 21m vehicles, a GM estimate cited in the reports showed.
Socia said overall car sales should total 19.4m to 19.5m this year.
