The head of international operations atCo. expects another solid year for the auto maker in China, although the country’s remarkable growth rate eventually will ratchet down, and says the promising Russian market appears back on track after a pause for the global recession.
“No market can defy gravity forever,” says Tim Lee, president-GMIO, a business unit accounting for nearly 45% of GM’s global light-vehicle sales. “But the growth rates in China will continue to be quite significant.
“We will have another good year in China in 2011,” he tells Ward’s during an interview at GM’s world headquarters in Detroit.
So far in 2010, GM sales in China appear on track to eclipse last year’s totals, which were a record for the auto maker in the country. Sales of 1.8 million total vehicles in 2009 propelled GM to a commanding 13.1% share of a 13.6 million-unit market, according to Ward’s data.
Chinese market-rivalAG delivered the closest competition in 2009, with 1.4 million sales and a 10.3% share.
Through the first six months of 2010, Ward’s data suggests another record for GM, with 1.2 million deliveries and 12.8% share, and the market appears headed for another milestone year with 9 million sales at the halfway mark.
Government incentives have been friendly to GM in 2010, creating a mix shift to smaller displacement engines favorable to the auto maker’s portfolio in China.
For example, a stimulus program slashing the vehicle tax by 50% on products sold with engine displacements smaller than 1.6L includes 13 products under GM’s wing. Another program just 4-months old subsidizes the purchase of 71 energy-saving vehicles, which includes six GM products.
But it’s been more than stimulus programs, Lee would argue.
An early arrival to the China boom at the turn of the last decade, GM has seen its sales in the country more than quadruple between 2005 and 2009 on the strength of partnerships, such as its JVs with Shanghai Automotive Industries Corp. and ChinaGroup Corp., but also through smart additions to its rock-solid Buick brand and the more recent rollout of Chevrolet.
Buick offers more than a half dozen models in China today and so does Chevy, while Cadillac counts as the fastest-growing luxury brand in the country with six available nameplates.
In August, GM announced the expansion of its-GM-Wuling Automobile Co. Ltd. commercial-vehicle JV would include a new brand called Baojun for passenger cars built and sold in China.
A potential juggernaut, the high value, low-cost Baojun sedans will target the lowest ends of the market segment in Tier 3 and Tier 4 cities just now transitioning from 2-wheeled transportation to four wheel, and where per-inhabitant income now reaches $3,000 annually.
“We want to be very well-represented there, and then follow the Alfred P. Sloan philosophy of moving people up through our portfolio as they go through their buying cycle,” Lee says.
China accounts for close to 55% of GMIO sales, and in paperwork for its initial public offering filed in August GM said any inability to maintain its market-leading position would “materially” and “adversely” affect its overall financial strength.
But as good as the China boom has been to the auto maker, caution signs have emerged.
In September, China’s industrial leadership told an automotive conference last year’s sales record “exacerbated the danger of overcapacity,” and Lee considers the threat of overcapacity genuine. “There is, I think, somewhat of an absence of discipline in terms of capacity creation,” he says.
“And having watched in many places over many years the consequences of overcapacity, we are going to be very, very careful,” adds the seasoned international executive who took over GMIO late last year for Nick Reilly, now CEO of Adam Opel GmbH in Europe.
“Our day’s (supply) on hand is very, very manageable, well below industry average; our turn rates are exceptionally high; and that’s the way the business model works effectively,” Lee says.
China isn’t the only market with good news for GM. Russia also is showing improvement after the global recession reined in its growth last year.
Light-vehicle sales in August jumped 50.7%, compared with year-ago, according to Ward’s data, and through the first eight months were 14.8% ahead of 2009 as government scrappage programs boosted consumer demand.
The new-car-sales’ revival continued in September, surging 55% year-on-year to 185,953 units,, according to the Association of European Businesses’ automobile manufacturers committee, driving 9-month deliveries up 18% to 1,321,027.
“The waiting is over,” Lee says of Russia, whose national economy sputtered when prices for commodities such as oil and natural gas plummeted.
GM sales in Russia last year tumbled 55% to 192,741 vehicles, from a record 432,051 in 2008. The auto maker also lost nearly two points of share, 14.1% to 12.5%, as the market plunged 50% to 1.5 million vehicles.
“There was some absence of focus and resource allocation in Russia, because there was uncertainty over where we were going to go as a company, and rightfully so,” Lee says. “Today, there is no uncertainty.”
GM sells Chevrolet, Opel and Cadillac in Russia, and Chevy presently ranks as the fastest-growing non-Russia brand. GM’s 99,458 vehicle deliveries through the first six months appeared on track to beat last year, although its market share only stood at 11.9%.
“I’ve been to Russia more than any other country since I took my position, because we see it as a wonderful growth opportunity,” Lee says, calling the market’s recovery trajectory V-shaped. “We see it as an area where we have a very good portfolio, a very good manufacturing footprint, and we want to optimize our business results.”
GM recently named a new managing director to its Russian operations, Jim Bovenzi, who comes to the post from the auto maker’s purchasing and supply-chain organization.
Lee expects GMIO to retain its leading position again next year in the key emerging markets of Brazil, Russia, India and China – the so-called BRICs. The auto maker’s market share in the four countries topped 12.7% in 2009, up from 9.8% in 2004, and accounted for 38.7% of GM sales last year.
“You couldn’t say that we dominate, but we’re 2-plus points ahead of(AG), and that’s not by accident,” he says. “We’ve been working at this for a long time. We’ve got great products, and we’re going to continue to push.”