General Motors to expand its base in China

Saturday 10 December 2011, 11:44 AM by

As the domestic car manufacturers strive to compete in the Chinese automobile market, General Motors is planning to count on the situation, hoping to increase its market share in the country.

According to an auto expert, Zhang Xin, General Motors and other foreign automobile manufacturers will grab the opportunity to expand their base in the Chinese market.

The domestic car sales is the lowest in the past 13 years that is pressurising the local manufacturers to leave the car industry. General Motors' sales in the country rose by 20%, allowing the foreign car makers to have an upper hand in the market. Chery Automobile Co., a domestic manufacturer, witnessed a sales drop by 30% in the last one month.

China Association of Automobile Manufacturers keep a record of 70 car manufacturers. Out of the 70, about 15 of the largest manufacturers account for 89% of the total units produced, wherein General Motors contributes the most and moreover, sells around 7,000 units in a single day.

This means that the rest of the manufacturers sell less than 10,000 units a month, with a few makers unable to even open their account during the whole year. The main reason for this could be the serious slump in the market. China Association of Automobile Manufacturers predicts that there will be an increase of 3% to 5% in the number of cars delivered to local dealers.

However, such conditions make way for more foreign investment and acquisition in the domestic market. Xin added that, “Opportunities are popping up for consolidation as overall growth slows and companies are being squeezed out by competition. But a lot of factors need to be in place for this to happen, including whether the degree of complementary manufacturing capacity available and the willingness to allow this on the local-government level.”

To overcome the problem, the Central government of China is trying to consolidate the local manufacturers. The government’s goal is to have around three national automobile manufacturers, which will provide annual sales of 2 million units and about five companies that will produce 1 million units by 2012. The Ministry of Industry has acknowledged that the automobile market is one of the sectors which should be consolidated.

The government is unwilling to allow any local manufacturers from closing down. Local manufacturers are supposed to contribute in order to increase the gross domestic product (GDP) as there is a lot of potential in merging local companies.

There are examples in China where local businessmen have forayed into the business of manufacturing cars. BYD Co., which manufactured batteries, started producing cars in 2003 after it acquired Qinchaun Automobile Co. Zhejiang Geely Holdings Group, is another firm that once involved in making refrigerators, is now investing and producing cars.

The Chinese automobile market has grown more than eight times in the past 10 years. It is expected to expand at a greater speed in the future. Big brands like Volkswagen AG and Nissan Motor Co. are planning to open manufacturing units in China.

Domestic automobile manufacturers who desire to remain in the competition are fighting back. Most of the local brands have implemented various marketing strategies to increase sales. Guangzhou Automobile company, for instance, has let their car models to feature in the movie called ‘Racer Legend’. Wu Song, General Manager of Guangzhou Automobile Group Motor Co., says “There’s been a lot of pressure on us on the pricing side. We want to beef up awareness of our Trumpchi cars by sponsoring the movie to let people know more about us.”

Thus, car makers like GM would intensify competition in the Chinese market, and confirm their presence in the most prominent way.