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A Great Leap Forward

China offers plenty of growth potential for the Big Three, but to gain further traction, the automakers must stay ahead of consumer tastes, expand into rural markets, and hope that government protectionists don’t squeeze them out.

A Great Leap Forward
Like all foreign automakers, Ford made inroads into China via a joint partnership.
PHOTOGRAPH BY LIU JIN/GETTY IMAGES

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BEIJING — “Remake General Motors?” economist Kevin Murphy asked during a recent debate in Chicago. “Of all the things that government can’t do,” he declared, “that’s got to be near the top of the list … it just makes no sense.”

But in the end, according to people like Jimmy Lu, the free market had every right to help GM prosper — even if it was 12,500 miles away, in Beijing. After surpassing the United States in July, China will likely be the world’s largest auto market for decades to come. Last year, Chinese buyers bought 13.6 million vehicles, up from 9.8 million units in 2008. By comparison, U.S. vehicle sales totaled 11.4 million last year.

More growth in China is expected. Steve D’Arcy a partner in PricewaterhouseCoopers’ global automotive practice in Detroit, predicts China’s auto market will grow 10 percent in 2010. And by 2020, annual sales could grow to 30 million units. “Keeping up with demand in China will be hard to maintain,” D’Arcy says. “That’s why I don’t see China being a big exporter (of autos) to the U.S.”

Part of the spectacular growth in China can be attributed to tax cuts and subsidies, as the government has encouraged consumers to buy fuel-efficient vehicles. Stimulus funds also went to infrastructure and construction, which kept people working. By contrast, most of the stimulus funds in the United States were given to individuals in the form of tax cuts and also helped to strengthen the social safety net.

“I’m really happy with this car,” says Lu, a Beijing marketing executive showing off his dark gray Buick Excelle in the San Li Tun district. “It’s a great value — and people notice how cool it is.”

After seeking government bailouts followed by bankruptcy, GM and Chrysler have a long road ahead when it comes to redefining themselves as carmakers of the 21st century. Ford avoided a government bailout by mortgaging its assets before the financial markets tightened in 2008, but it still needs to generate profits over the long haul to meet its debt obligations.

If anything, China offers the Big Three not only potential, but also a way to admonish skeptical critics. “This has been a year of records for GM in China,” says Kevin Wale, president and general manager of General Motors China. He had announced that, for the first time, GM enjoyed unprecedented sales of 1.8 million units in China last year, up from 1.3 million vehicles in 2008. GM also sold nearly 190,000 vehicles in December — almost twice the monthly sales rate in China from a year earlier.

There’s a bittersweet irony in much of this, given that the global economy has, in many fundamental ways, exerted downward pressure on Detroit. Nonetheless, Big Three executives see room for movement overseas. “Asia-Pacific is a very important market for us,” Ford CEO Alan Mulally said while in India, introducing the new Figo four-door hatchback. It’s a region in which Ford plans to “accelerate” its presence.

As if to underscore its desire to race ahead, Ford recently announced plans to relocate its Asia headquarters from Bangkok to Shanghai, home to a $250-million corporate research center. The decision is a reflection of Ford’s desire to build its brand in China while keeping a sharp eye on Beijing, which is anxious to establish Shanghai as a newer and  slicker version of Detroit.

The numbers leave plenty of room for optimism. Indeed, according to China’s National Bureau of Statistics, there are more than 65 million vehicles registered on the country’s roads. And there’s plenty of growth on the horizon: Private car ownership in China equates to about 20 cars per 1,000 people — an unheard-of opportunity for any car manufacturer, foreign or domestic.

In fact, the bigger, heavier cars more associated with Detroit’s downfall are finding parking space here, too. Last October, GM announced the sale of its Hummer brand to Sichuan Heavy Industrial Machinery Company Ltd., a machinery concern in western China. Although the deal has yet to be officially approved by Chinese and U.S. regulators, finalization is expected soon. Prior to the final tentative approval, however, Chinese government regulatory officials questioned whether Sichuan possessed the managerial, industrial, and technical ability to properly run a U.S. company.

“This [could] be difficult,” says senior planning official Chen Bin. “Chinese buyers would need to learn to deal with different management techniques, unions — and whole new ways of thinking.”

Beijing has also voiced concerns about the potential environmental effects of the Hummer’s production (international pressure on Beijing to reduce carbon emissions has a long history, and is now at a fever pitch despite its decidedly mixed reception by some officials, who point to the fact that America’s Industrial Age produced comparable amounts of pollution as China did in 2009).

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Mar 22, 2011 09:48 pm
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