By Michael Ellis
DETROIT, Aug 21 (Reuters) - General Motors Corp. plans to assemble at least three Cadillac cars in China in the next two years, part of its aggressive plans to launch the brand in the fastest-growing automotive market in the world.
Like its competitors BMW AG , Mercedes and Audi , GM sees a sizable amount of pent-up demand for luxury vehicles among a growing number of wealthy consumers in China.
"On top of explosive growth, the desire for prestige products in China makes that market very attractive to us," John Howell, Cadillac's director of global brand development, told Reuters in an interview. He spoke to Reuters on Wednesday and last week.
GM's Buick division now serves as its premium line in China, but the addition of Cadillac, as well as Saab, will add a higher level of luxury.
GM will assemble the Cadillac CTS sedan and the SRX mid-size sport utility vehicle at its joint-venture plant in Shanghai next year, and the next-generation Seville, to be called the STS, there in 2005, Howell said.
Initially, GM will rely on 'semi-knocked-down kits' (SKDs) to build the vehicles. GM will export cars that are mostly built and a few minor components from the United States to Shanghai, where the final parts will be added.
With the SKDs, GM can skirt taxes charged on completely built vehicles, and quickly launch Cadillacs in China without investing in costly tooling and stamping equipment.
CUTS COSTS
"It's certainly much cheaper than installing an assembly plant," said Bruce Harrison, a consultant with the Automotive Group of automotive advisors Global Insight. "It gives you a way to get some local content into a vehicle...with a limited investment."
However, China is in the midst of formulating a new policy on automobile production, which some analysts said will discourage the growing number of automakers shipping partially-built vehicles to China.
Chinese generally associate Cadillac with larger cars, but the mid-size CTS sedan could appeal to the majority of drivers who are in their 30s and 40s, said Tim Dunne, a partner of Beijing-based Automotive Resources Asia.
"There may be a room for a smaller luxury car segment to develop, particularly for the children of the wealthy, and perhaps to include the 'er nai' (second wife) of rich Chinese men," Dunne said.
Asian newspapers have reported on the growing number of businessmen, particularly from Taiwan, having mistresses or second wives in China.
To broaden the Cadillac lineup, GM will also export some fully built vehicles to China, like the Escalade large SUV and perhaps the Deville large sedan, Howell said. A limited number of Devilles have already been sold in China to test the market
Later, GM may move to fully manufacture and assemble some Cadillacs in China as its supplier network matures, Howell said, a step which would require more investment in plant capacity and costly tooling.
NEW DEALERSHIPS
The cars will be sold at Cadillac-only dealerships, the first four or five of which are expected to open in major Chinese cities next spring, Howell said. Cadillac sales could total several thousand vehicles in China within a year or two, Howell said, without providing a specific target.
GM was criticized when it plunged into the Chinese market in the late 1990s, but sales have grown rapidly, and its operations there have been profitable.
The Detroit automaker doesn't disclose earnings from China in particular, but in the second quarter, GM earned a record $163 million in the Asia Pacific region, nearly double the $83 million profit from GM's core North American automotive operations, where costly consumer incentives hurt results.