86-GM’s China Problem
GM has been a strong performer in the Chinese auto market. But their sales have hit a wall. In 2008, the Chinese automobile market was up 7%, but GM’s automobile sales were down 16%.
GM is losing market share to the usual Japanese suspects, Toyota and Honda, who are aggressively expanding in China. But the company is also losing market share to the more expensive Audi and BMW models.
What is behind this loss of market share? Two reasons seem apparent. First, GM’s problem with potential bankruptcy in the United States has scared away some of the Chinese consumers. But the problem is deeper than that. There is a significant problem in the cars that GM is offering the Chinese consumer.
GM is competing in China with the Buick brand name. Its best seller is a mid-sized sedan called the Excelle. The Buick Excelle is made in Korea. It is also sold in other emerging markets as the Chevrolet Lacetti. Chinese consumers have gradually become aware of the Excelle’s Korean engineering and they don’t think it is as good as American-designed automobiles. In addition, the Japanese in China, as they have in the United States, have set the quality standard with their automobiles. Some Chinese believe GM is not up to that standard.
GM is beginning to slip with the Chinese consumer because of Reliability failures. (See the Perspective, “Failure Shifts More Share Than Success” on StrategyStreet.com.)
General Motors has performed respectably in the Chinese market in recent years. General Motors and its joint ventures sold 2.9 vehicles in the Chinese market in 2020. China is the company’s largest market. The US was the 2nd largest with a total of 2.2 million vehicles sold in 2020.
In 2020, China produced about 20 million automobiles and another 5 million commercial vehicles. China began to deregulate its automotive sector in the mid-1990s but prohibited foreign firms from owning more than 50 percent of stakes in joint ventures. General Motors joined forces with Shanghai-based SAIC in1997. The SAIC Motor Corporation, which is also involved in a partnership with Volkswagen, was the leading auto manufacturer in China with car sales of just over 2.5 million units in 2020. The SAIC-GM joint venture sells vehicles under the Buick, Chevrolet, and Cadillac brands. General Motors also sells commercial vehicles in collaboration with the Changchun-headquartered automotive manufacturing company FAW Group Corporation.
While I am sure that foreign firms entering the Chinese market resent having to give up a significant part of their product ownership in the Chinese market, the arrangement does have some significant benefits. First, the tie-in to a well-known Chinese brand name increases the perceived Reliability of the product by the Chinese consumer. Second, the partnership with Chinese companies well-established in their markets also increases the Convenience benefits for the Chinese consumer. Go HERE and HERE to see more about Reliability and Convenience.
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