CHINA: General Motors bets on luxury cars and minis - report

By just-auto.com editorial team | 19 November 2003

General Motors is betting on strong growth in both China's luxury car market segment and an underdeveloped minicar market for the success of domestically-produced Cadillac and Spark models, a company executive told Dow Jones Newswires.

GM's decision to add upper-market Cadillac models to the company's China-made brand line-up is aimed at tapping the soaring demand for luxury vehicles, GM China Group's chief executive Phil Murtaugh told the news agency.

"The luxury segment is booming in China," Murtaugh reportedly said, adding: "It's small on a comparative basis, but it's an opportunity (so) we just thought that with the Cadillac portfolio that we have now, we think we have an extremely competitive product."

Dow Jones noted that General Motors announced earlier this month that it will add Cadillacs to its current China model line of Buick and Chevrolet brands by expanding manufacturing capacity at its joint-venture facility with Shanghai Automotive Industry Corp. ( Group), or SAIC, by 50%.

Capacity at the plant in the eastern coastal city of Shanghai will increase to 300,000 units by the end of 2005, but GM hasn't confirmed when Cadillac production will actually begin, Dow Jones said, adding that GM currently claims an 8.2% share of China's car market, compared to about 33% for market leader Volkswagen.

GM's move to bring the Cadillac to China indicates how foreign car manufacturers and their joint venture partners are scrambling to satisfy a new generation of urban Chinese consumers whose rising disposable income levels have spurred a passenger car sales boom, Dow Jones said.

The news agency said that China recorded a 69% year-on-year rise increase in passenger car sales to 1.34 million units in the first nine months of 2003 while GM's China sales reached 267,395 units in the same period, up from the 264,371 units sold in full-year 2002.

According to Dow Jones, that consumer demand has been boosted by a range of new vehicle loan products offered by China's state bank sector while accessibility to GM products will be further widened by a vehicle financing joint venture with SAIC that Murtaugh hopes will begin operations by the second quarter of 2004.

But the bulk of those rising car sales have to date been focused on small sedan models including GM's Sail and the VW Polo, Dow Jones noted.

Murtaugh told the news agency that proven track record of sales preference made GM's decision to introduce its Spark minicar "a crap shoot" in terms of consumer popularity.

"To be honest, there's a lot of debate for what the growth prospects for minis are," he told Dow Jones, adding: "Some people believe it will be the next high-growth segment, other people believe it will always stay a relatively small segment."

Dow Jones noted that the Spark has already attracted public attention through an intellectual property right dispute fuelled by allegations that another China-made vehicle, the QQ, produced by SAIC Chery Automobile Co, closely resembles the Spark.

"There have been persistent rumours that (the QQ) looks like the Spark and we're in the process of investigating it," Murtaugh told Dow Jones on Tuesday, without elaborating.

Executives at SAIC Chery have denied they copied GM designs in building their QQ model, the news agency said.

Dow Jones said GM hopes the Spark's launch will help spur sales in the currently moribund domestic minicar market and Murtaugh reportedly said GM will price the Spark at around $8,000.

"One of the reasons it's a small segment is there are no good minis in China ( and) most of the minis sold are very poor quality, very old technology vehicles, " he told Dow Jones, adding: "We think that with the introduction of a modern, high quality mini, that market has room to grow."