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China and India are key to driving GM's future

From telegraph.co.uk| July 28 , 2008

The car giant must crack China to succeed in the long term, its Far East boss tells James Quinn in New York.

Nick Reilly does not need to check the history books to work out that the American car industry is in perhaps the biggest state of flux in its 100-year history.

One of General Motors' elder statesman - and its most senior British employee - Welsh-born Reilly has worked with the company across three continents for the past 33 years.

When we spoke, he had ducked out of a series of high-level meetings at GM's global headquarters in Dearborn, Michigan; some 7,100 miles and a world away from his usual base in Shanghai, where he is president of GM's sprawling operations in the Asia-Pacific region, at the forefront of growing the company's global footprint.

"The car industry around the world is in an unprecedented period of change," he admitted. "One tends to say that a lot, but there are reasons why it is happening right now."

Some reasons are obvious - high oil prices and tougher emissions legislation in many countries - and they are "driving a heavy change in the mix of products, driving consumers away from what they are used to".

But there is a third: "On top of those there's a permanent shift of economic power to the east." That change is real and here to stay, Reilly argued, stressing that growth seen in emerging markets is not a short-term phenomenon but "is likely to last 10-20 years at least".

"So a company like GM which has been pretty focused on the US and western Europe does have to go through a fundamental change," Reilly admitted.

For GM, that fundamental change has involved three major restructuring announcements in the past 12 months, including a historic labour agreement with the Union of Auto Workers which will cap the company's healthcare liabilities and introduce flexible rates of pay at its North American factories, as well as closing some of its larger truck and 4x4 plants in the US and adding extra shifts at its smaller car factories.

GM's chief executive, Rick Wagoner, recently announced plans to boost the firm's capital position by $15bn (£7.5bn) by 2009, by cutting thousands of office jobs, suspending the dividend, restructuring plants and selling off unwanted assets.

Was it enough to stave off concerns over GM's liquidity? Reilly, 58, seemed to think so, pointing to the reaction of GM's share price, which had risen by almost 25 per cent from lows of below $10.

"Over two-thirds of that $15bn will come from our own internal actions rather than equity or major loans," he pointed out, leaving flexibility to tap the financial markets should they improve.

The calculations on which he and the rest of the executive team based these assumptions were predicated on a weak economy, he stressed. "But if oil goes to $200 in the next month, don't come back and say I thought you said you'd done enough," he teased.

If the restructurings are largely about cutting costs in GM's traditional heartlands, Reilly's role is about growing the business in its newest region, where he has been based for the past seven years and where the strongest potential undoubtedly lies.

The company is working hard at adapting here, not just to the demands of the very different consumers but to the challenges thrown at it by competitors.

Take the Tata Nano. The Indian conglomerate, which recently took Jaguar and Land Rover off Ford's hands, is building a mini-car which will retail for the equivalent of $2,500 in the region.

Can GM compete? "We're not going to compete with the Nano on price, especially as there are some compromises on the car that we wouldn't want to put on some of our brands."

Reilly identified a new segment in the marketplace, where customers want extremely low-priced cars that function just as well as the products of the mainstream market in which GM has traditionally operated.

"If we want to succeed overall we have to be able to compete in that new segment," he said, admitting that GM was not quite there in all areas. "But in some cases we're there already. In China we have a joint venture in small commercial vehicles which have a very low price, and we're looking to export those to other emerging markets."

He also noted that some GM Daewoo products have been "thrifted down" to a competitive price.

If GM is to succeed in the long term it must do well in China, and Reilly knows this. The company has a long association with the rising superpower through its Buick brand, but has added the Chevrolet marque to the Chinese mix in the past few years as it was felt that Buick was being stretched too far.

The "Chevy", which has also been popular in Latin America for some time, is working well, with Chinese sales up by 12.7 per cent in the first six months of the year and GM setting a quarterly record for China in the three months to June, selling 279,000 vehicles.

"China is such a huge market. It will see 10m cars this year, and is set to overtake the US in three to four years' time," Reilly said.

One way he can do this is by not reinventing the wheel. If something is going on elsewhere in GM that might help Asia-Pacific, he wants to know about it. This is one of the reasons for his trip to Detroit, for a semi-annual meeting of GM's four regional presidents and their major lieutenants. "We set the team up a few years ago to see if the opportunities are the same, and so only come up with one solution rather than four."

One example of this has been at Holden, GM's Australian business, where it is working on alternative-fuelled versions of its Commodore model. But rather than the Australians informing thinking at Dearborn, as might have been expected, it's been the other way around. "I think we've been able to benefit in Australia from the work done in the US."

Although Reilly, who joined GM in Britain in 1975 in its large engines business, is a realist, he said his job was "probably one of the most exciting in the company". Even when figures out last week showed that one of the rivals on his patch, Toyota, had increased its lead yet further over GM as the world's largest car manufacturer?

"We don't spend a lot of time looking at that particular metric. It's about how we win, and our definition of winning is not being the biggest."

Not now, perhaps, but given that the company boasts on its website that it was the world's car sales leader for 76 years, perhaps Reilly was just being pragmatic. A pragmatic Brit in a brash American company that, in spite of his efforts, faces many troubles on the long road ahead.

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