GM-VW China Rivalry Heats Up as Both See 3 Million Auto Sales

Bloomberg News, April 21, 2013

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General Motors Co. and Volkswagen AG, the largest foreign carmakers in China, both forecast sales will climb to 3 million vehicles in the country this year as the rivalry heats up for a second year.

GM is “cautiously optimistic” and expects its sales to reach that level if market fundamentals are strong, Bob Socia, head of China operations, said in an interview at the Shanghai Auto Show yesterday. His Volkswagen counterpart, Jochem Heizmann, said a day earlier that the German carmaker expects deliveries to reach that number or beyond. Both companies sold about 2.8 million vehicles in China last year.

The projections signal competition -- GM’s lead over VW in China shrank to less than 1 percent in 2012 -- will intensify as their sales slow in their biggest market. At stake is supremacy in China, which may become the first market with more than 20 million vehicle sales this year, and where car-ownership levels are still a fraction of those in the U.S. and Western Europe.

“In terms of their presence, GM may be in a better position with their strong network and a more complete product portfolio,” said Bill Russo, president of automotive consultancy Synergistics Ltd. Still, most carmakers “are probably anticipating market expansion to be not as robust as it has been in the past, and the supply-and-demand imbalance is creating additional pressure on pricing,” he said.

Heizmann’s Apology

Wolfsburg, Germany-based VW, facing a European auto market headed toward a 20-year low, is seeking to rebuild its image after a state broadcaster’s report on defective gearboxes in VW cars prompted the German company to recall a record 384,181 vehicles in China. Heizmann expressed his personal apologies over the matter at an April 19 event in Shanghai.

Apologies may not suffice. More than a dozen stone-faced riot police in black flack jackets and helmets lined the VW stand yesterday morning. Across the aisle at the Buick stand, a young American couple modeled beside the Riviera concept car, where a man wore a silver shark-skin suit evoking Frank Sinatra, while female models preened in a metallic silver sheath mini- dresses and high heels.

The incident hasn’t deterred the German company’s expansion plans. VW forecast it will increase its China line-up 29 percent to 90 models by 2015, invest 9.8 billion euros ($12.8 billion), and expand production there 60 percent by 2018.

‘Squeezed’ Margins

GM, which outsold VW in China last quarter after trailing the German carmaker for two quarters, isn’t ready to relinquish the lead. The company showcased a record 53 vehicles at the Shanghai show, including the Buick Riviera concept vehicle, the Chevrolet Cruze hatchback and Cadillac Escalade ESV. The company plans to spend $11 billion in China by 2016.

Still, GM is mindful of the competition and China is a market where margins will “always be squeezed,” he said.

There’s more to China than just GM and VW as other previewed their offerings to Chinese consumers at the Shanghai show. Sport utility vehicles -- the fastest growing segment of China’s auto market -- stood out. Honda Motor Co. showed its concept Acura SUV-X that will be produced in China, Ford Motor Co. said it plans to debut two small SUV models in the market this year, and Daimler AG showed off its planned Mercedes GLA.

Chrysler Group LLC’s Jeep, which became the first western auto brand built in China in 1983, may resume Chinese production by the end of next year, starting with the Cherokee, Mike Manley, head of the brand, said in an interview. Ford has received an “incredible” number of pre-orders for its EcoSport and Kuga SUVs that debut this year, Jim Farley, the automaker’s global marketing chief, said in an interview.

SUVs Shine

At GM’s Cadillac stand, a pearl-white Escalade ESV rotated on stage as a model in a white brocade gown posed for a throng of photographers. Curious showgoers piled into the front and back seats of SUVs at GM’s Buick and Chevrolet stands.

“SUVs are considered a status symbol of the advancements you’ve made so far in your life,” said Manley. “As you get better ride and handling and fuel economy in SUVs, you see people migrating out of passenger cars.”

Automakers have reason to be optimistic about SUVs. Sales of the vehicles will probably rise 23 percent to 2.46 million units, outpacing all segments in 2013 for a second straight year, according to the state-backed China Association of Automobile Manufacturers. Chinese SUVs are also doing well, with Great Motor Co.’s sales of its Haval vehicles surging 92 percent during the first quarter.

Crowding Market

Luxury carmakers continued their push to capitalize on China’s growing number of wealthy consumers. Daimler said it plans to increase its number of dealers by about 30 percent this year and BMW’s Rolls-Royce is planning to expand its network by 25 percent.

The Chinese market, cluttered with more than 90 brands of vehicles, may get even more crowded as Volvo Cars and Jaguar Land Rover prepare to begin production in the country. The extent of the choices available, can sometimes overwhelm consumers.

“There are so many options nowadays,” said Kenneth Zheng, 32, who was checking out Renault SA’s 320,800 yuan ($51,900) Talisman sedan at the Shanghai show. “I am totally lost just by touring around here. Popular models like Buick or Passat may be the safest choice.”

Nissan Motor Co.’s Infiniti will make two long-wheelbase models in the country, following VW’s Audi, Daimler’s Mercedes and BMW in stretching the length of their vehicles to cater to Chinese tastes.

Japanese Rebound

Nissan, which outsells Toyota Motor Corp. in China, said it’s expecting a 16 percent increase in sales at its Chinese venture this year as anti-Japan sentiment, triggered by a dispute over uninhabited islands last year, subsides from the protests that flared in September. Nissan, Toyota and Honda all saw their China sales fall last year, a slump that extended into the first quarter.

Still, for companies such as Nissan, the bigger challenge may be figuring out how to make cars that appeal to Chinese youths. Young people today are very tech-savvy, very much connected and social media is very important, so vehicles should bring friends together in the car and allow them to share social media content, according to Nissan Executive Vice President Andy Palmer.

“If you look at all the segments all around the world, the single biggest segment globally is ‘ba ling hou,’” Palmer said in an interview, referring to the Chinese word for people born in 1980 and beyond. “240 million people in the segment and nobody is really addressing on the global maker level. We think the needs of these customers are going to change the face of automotive not just in China, but globally.”

--Alexandra Ho, Christoph Rauwald, Keith Naughton, Tian Ying, Ma Jie, Yuki Hagiwara, Stephen Engle and Anna Mukai. Editors: Young-Sam Cho, Chua Kong Ho