General Motors (GM) is the world’s largest automaker. The company sold 9 million units worldwide in 2011. GM China, consisting of six joint ventures, represents 13% of the exponentially increasing Chinese market that produced 18 million automobiles last year. The most successful GM Chinese joint ventures are Shanghai GM and SAIC GM Wuling, both selling over 1 million units in 2011. To date, GM China has maintained steady growth in China, an industry with many competitors. Maintaining the successes of Shanghai GM and SAIC GM Wuling as automobile sales leaders in China will depend on firm’s ability to successfully adjust to the inevitable change of industry structure. The strategy to meet the needs of the future will be based upon maintaining current demand, gaining new customers, and establishing competitive advantage new markets. To maintain their current level of profitability, it is evident that GM China must continue to meet Chinese demand while understanding that the current level of growth will eventually reach its apex. GM should also be aware that new customers, especially first time buyers, should be targeted existing and emerging markets. Thorough examination of automobile industry trends reveals several areas of interest that appear to be key components of a strategy that will help GM maintain its position as a global leader in the automobile industry.
The Chinese automobile industry is growing. GM China is committed to meeting Chinese consumer demand regardless of the cost. In June 2012, Shanghai GM broke ground on a 1 billion dollar production facility in Wuhan, Hubei Province. Scheduled to be completed in 2014, this 300,000 unit capacity site will become the fourth production facility in mainland China. This new facility is expected to make small and medium cars, SUVs and energy vehicles. It seems obvious that GM believes the Chinese market explosion is only in its infancy. Despite setting several records for annual car sales in 2011, the outlook for 2012 and beyond is tempered. Due to concerns about pollution and traffic, the government is limiting new vehicle registrations in China’s largest cities. Moreover, government subsidies and tax breaks for car purchases were eliminated due to automobile saturation concerns. If the growing demand in China has reached its apex, GM needs to adjust their sales focus and production volume strategies. Based on historical trends of other car producing nations who encountered similar GDP per capita increases, the saturation of car purchases will not occur until production reaches 50 million cars in 2030. (Figure 1) This means that automakers need to seek out new customers to continue selling cars at a record pace. If we separate China’s cities into groups defined by the relative value of GDP increase, the data shows that the GDP of China’s smaller cities is growing much faster than GDP in its larger cities (Figure 2) As smaller cities catch up to the GDP growth of larger cities, GM China needs to target these areas for dealer and service network expansions. Customers in these less urban areas are expected to be first time buyers looking for cars in the medium or low end of the price spectrum. Fortunately, SAIC GM Wuling established the Baojun brand in 2010 as alternative to medium priced Buick or Chevrolet cars. The joint venture sells trucks and vans under the Wuling and cars under the Baojun brand, focusing on the low market segment with sales of 1.29 million units in 2011. The Baojun brand was established to compete with domestic Chinese brands Chery, Geely and BYD. In an effort to protect their profits, each domestic brand competitor is doubling production by 2015. They understand that they cannot currently compete with larger manufacturers to take advantage of scale economies. Therefore, GM China must ensure that they make lower tier cities a priority market, starting with the Baojun and Wuling brands.
In addition to competing with low cost domestic...
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