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GM No. 1 in China on minivans outselling Buick

From Bloomberg| August 27 , 2009

When Beijing deliveryman Han Yanmin replaced his motorcycle with a low-cost minivan, he rejected Chinese automakers and opted for General Motors Co.

"GM technology makes it very reliable," Han, 32, said while waiting to unload his nine-month-old Wuling Sunshine at a city vegetable market. "All the folks in my village have bought Wulings."

Detroit-based GM, majority-owned by the U.S. government after emerging from bankruptcy, has boosted auto sales in China 43 percent this year, helped by state subsidies and prices starting at 25,800 yuan ($3,800). That's less than 20 percent the cost of a Chevrolet Silverado pickup, GM's best-selling model in the U.S. The company, maker of about one in every two minivans sold in China, has started exporting the 1-liter-engine vehicles to other emerging markets.

"You can make money out of minivans -- if you sell enough of them," said Klaus Paur, a Shanghai-based director at market research company TNS China. In China, minivans are "selling really, really well this year."

GM expects to sell more than 800,000 minivans in China this year, a six-fold increase from 2003, the first full year of production for SAIC-GM-Wuling Automobile Co. The carmaker opened the venture, based in the southwestern city of Liuzhou, after seeing a market for cheap, multipurpose vehicles, GM China President Kevin Wale said.

"In China, people use cars for small business and at the same time for family transportation," he said. "In the U.S., they are generally into comfort and rarely buy a passenger car with a commercial utilization."

No U.S. Demand

GM no longer makes minivans in the U.S., focusing instead on crossover and sport-utility vehicles. Minivans account for about 4 percent of vehicle sales in the U.S. this year, according to Woodcliff Lake, New Jersey-based Autodata Corp. Sport utility vehicles make up 28 percent.

The automaker couldn't sell Wulings in the U.S. or Europe without significant upgrades to meet safety and emissions standards, said John Zeng, a Shanghai-based analyst at IHS Global Insight. GM China said it hasn't put one through a U.S. safety test. Some models have air bags.

The Wuling Sunshine, the best-selling minivan in China, has a wheelbase of 2.5 meters (98 inches). That's 50 centimeters (20 inches) shorter than the $26,805 Honda Motor Co. Odyssey, the most popular in the U.S. The 2010 Odyssey gets 17 miles to the gallon in city driving. The Sunshine gets 47 mpg, Wuling said.

"It's awesome," Lu Zongbo, 28, a Beijing vegetable seller, said of his Sunshine. "It never lets me down."

Dominant Grip

Wuling's three plants can make a total of 900,000 vehicles a year. Its 48 percent share of the Chinese minivan market is double that of its nearest rival, Sichuan province-based Chongqing Changan Automobile Co.

That domination keeps Ford Motor Co., which makes sedans with Changan, and Volkswagen AG, the largest overseas carmaker in China, out of the nation's fastest-growing auto segment. Minivan sales jumped 60 percent in the first seven months to 1.09 million, almost double the growth rate for the overall passenger-vehicle market, according to the China Association of Automobile Manufacturers. Total vehicle sales, including trucks and buses, rose 23 percent as China surpassed the U.S. to become the world's biggest auto market. GM's total U.S. sales have fallen 38 percent through July.

"It's not that other foreign automakers don't want to sell minivans, they just can't," said Yale Zhang, Shanghai-based director of auto-advisory company CSM Asia. "There's simply no point pursuing it because the volumes and the economies of scale would be too small."

Low Margins

Minivans likely have margins as low as 1,000 yuan ($150) each, Zeng said. GM shares Wuling's profit because it only owns 34 percent. Shanghai government-controlled SAIC Motor Corp., China's biggest domestic automaker, holds 50.1 percent, and Liuzhou Wuling Motors Co., based in southern China's Guangxi region, owns the rest.

GM makes "reasonable returns" from minivans, Wale said without elaborating. The carmaker would be "happy" to own more of Wuling if either partner wanted to sell, yet no talks are under way, he said. Overseas carmakers can operate plants in China only through ventures with local companies.

Earlier this month, GM also started shipping Wuling minivans to South America, the Middle East and North Africa, where it will sell them as Chevrolets. The automaker is looking for new overseas markets after first-half sales in North America fell about 40 percent, forcing its predecessor to shutter businesses and enter bankruptcy.

Buick Sales

The carmaker, which sold its first vehicle in China in the 1920s, also builds passenger cars in the country through Shanghai General Motors Co. That venture, equally owned with SAIC Motor, boosted sales 26 percent in the first seven months to 345,332, led by demand for the Buick Excelle, the nation's No. 2 selling passenger car. Hyundai Motor Co.'s Elantra Yuedong tops the rankings, with Volkswagen's Jetta in third.

GM's Asia-Pacific sales increased 22 percent in the first half, the only region to show an increase. All of its operations outside of North America are run from Shanghai by Nick Reilly, who was promoted from Asia-Pacific chief on Aug. 1.

"GM has been very smart in developing markets," said Michael Dunne, Shanghai-based managing director of J.D. Power & Associates China. "Global automakers have been fearful of what Chinese automakers can do when it comes to building small cars at a low price, but GM's got out in front of this."

Back in Beijing's vegetable market, Han said he liked his minivan for its dependability and big back door, which makes it easy to load. The chance to shelter from the city's chilly weather is also a plus, he added.

"It was so cold riding a motorcycle," he said. "It's nothing like that in my van."

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