China is GM big hope for future. 24% of its global sales are in China. Operations there are profitable. Guess what - recently GM sold their controlling 1% share to SAIC - large Chinese auto company!!
On the congested streets of Shanghai, where drivers pay no heed to painted lane stripes, Buicks jockey for position with Toyotas, Audis and Volkswagens, honking as they manoeuvre through traffic made worse by the city's frenetic development.
But away from China's traditional wealth centres, in cities like Kunming and Zhengzhou and in vast rural areas, the roads are populated by entirely different vehicles: bicycles, scooters and Western knockoff cars bearing the badges of obscure Chinese brands.
One vehicle is ubiquitous throughout the Chinese countryside: the Wuling Sunshine. Reminiscent of a 1960s-era VW "hippie bus"--but half the size--the Sunshine is the vehicle of choice for China's small business owners and farmers, who use it to haul everything from electronics to sugarcane.
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Priced as low as $4,500 (about 7 per cent above its Chinese competition) and topping out around $9,000, the no-frills Sunshine is by far China's bestselling vehicle, with 597,000 purchased last year. (Government subsidies to rural buyers helped.) The bestselling car in the U.S., the Ford F-series pickup, no longer comes close to that sales level. There are more than 2 million Sunshines on China's roads.
The lucky manufacturer of this bestselling vehicle in the world's largest and fastest-growing market? General Motors--the company that needed a government handout to survive in 2009. In the U.S. and Europe GM may or may not succeed in making cars that consumers want. In China it is producing exactly what customers need: cheap transportation.
GM builds these vans so efficiently with its two Chinese partners that it plans to expand Wuling's entry-level product line to include passenger cars and replicate its low-cost business model throughout the developing world, starting with India.
GM was already a sales leader in China with its Buick and Chevrolet brands. Now its Wuling venture is the cornerstone of a growth strategy. To support the push outside the U.S., GM has quadrupled its engineering and design staff in China over the last few years and is investing $250 million to build a research and development centre on the Shanghai campus of its new international headquarters.
"We're generating a footprint to grow from," says Kevin E. Wale, who oversees the strategy as GM China's president.
Of course GM, which borrowed $50-billion from U.S. taxpayers, has a lot of work to do to repair its business in its home market. But the auto maker's future won't be determined in Detroit or North America. That future, instead, will play out in China and the rest of Asia, where GM is reinventing itself as a lean and highly profitable auto maker.
Five months into his job as chief executive, Edward E. Whitacre Jr. has his hands full. Even if he succeeds in fixing the company's North American operations, the best he can hope for here is to snag a point or two of market share from rivals. GM sold its Saab brand in February and is phasing out Pontiac, Saturn and Hummer to focus on Chevrolet, Cadillac, Buick and GMC. In 2009 it slashed its dealer network, renegotiated its labour contracts and shifted responsibility for retiree health care to a union-controlled trust fund. Despite the painful and needed changes, GM is still unprofitable, and huge challenges remain before it can go public again and pay off the U.S. Treasury, all the while trying to keep election-year politicians at bay.
GM is thankful for its Asian market. China accounts for 24 per cent of GM's sales, and last year China eclipsed the U.S. as the world's largest vehicle market, with 13.6 million units sold, a 46 per cent increase. Through March auto sales in China rose 72 per cent over 2009 to 4.6 million units, according to the China Association of Automobile Manufacturers. Sixteen million vehicles could be sold in China this year.
In 2009 GM and its Chinese partners sold 1.8 million vehicles there, a 67 per cent surge, ending the year with an estimated market share of 13.4 per cent. It sells vehicles in China under the Buick, Cadillac, Chevrolet, Opel, Wuling and Jiefang nameplates. The company expects to sell 2 million cars and trucks in China this year--for the first time more than in the U.S.
GM doesn't break out financial data by country, but its international operations are the only profitable part of the company. While GM overall lost $4.8-billion before interest and taxes during the period between its July 10 emergence from bankruptcy and the end of 2009, its international operations (everything except North America and Europe) earned $1.2-billion. The China joint ventures account for approximately one-third of that profit. For all of 2009 GM's share of earnings from its China partnerships was $764-million.
GM plans to use China as a springboard to growth in other markets in Asia, Latin America and Africa. "The opportunities are almost unlimited," says Timothy E. Lee, president of GM International Operations. Already, GM is selling Wuling vehicles as Chevrolets in Brazil.
Making it happen is Wale's job, which arguably puts the company's future on his back. An affable Australian who began his GM career in the finance department of its Holden subsidiary in 1975, Wale was a senior executive in GM's European operations before being appointed to his current post in 2005.
His biggest challenge: managing China's supercharged growth and making the case for capital while the rest of the company bails water. The China joint ventures kick off enough cash to keep GM China self-funded, but Wale still has to be sensitive to the problems back home. "It's a matter of talking to people and convincing them that we need to keep investing for the opportunity," he says.
But Detroit is a long way from Shanghai. Late last year the cornered car maker ceded control of its largest and most successful joint venture to its ambitious Chinese partner, Shanghai Automotive Industrial Corp. (GM was paid $84.5-million for a 1 per cent stake that tipped the scale.) Management remains the same--three executives for each company--but SAIC gained veto rights and a deciding vote on Shanghai GM's board of directors.
GM says it yielded as a favour to its longtime partner, which wanted to consolidate the joint venture's earnings into its publicly reported financial results. The company insists the partnership hasn't changed and that it has the right to repurchase the 1 per cent stake later.
Analysts aren't buying it. "Anyone who knows China understands that foreign car makers never willingly do favours for Chinese partners like SAIC, who are also fast-emerging competitors, offering their own lines of cars," Michael Dunne, president of China auto consultancy Dunne & Co., wrote on a DetNews.comblog post. Adds Stephen D'Arcy, coleader of PricewaterhouseCoopers' global automotive practice: "When you don't have control, particularly in China, you're kind of at their mercy."
GM had little choice, though. The initial $13.4-billion loan from the U.S. Treasury in December 2008 restricted GM from using taxpayer money to fund its overseas businesses. That's one reason it felt compelled to divest its crucial European Opel division, for instance (a decision later reversed by GM's board).
Then, in the midst of last year's crisis, the Korean unit, GM Daewoo Auto & Technology, made a $500-million hedging mistake on the Korean won. To avoid defaulting on its Korean bank loans, GM Daewoo had to come up with hundreds of millions of dollars in fresh capital. Letting GM Daewoo go bust would have been devastating for GM's global strategy. "Most of the cars GM sells in China begin as kits in Korea," notes Dunne. "Cut off Korea and all of a sudden China's in trouble. The pressure must have been unbelievable."
But GM wasn't free to invest its limited capital in Korea. Its equity partners in the Daewoo venture--Suzuki, the Korea Development Bank and SAIC--all refused to invest fresh funds. (SAIC at the time was dealing with its own embarrassment--the bankruptcy of another Korean car making affiliate, SsangYong Motor Co.)
GM began talking seriously to SAIC about the Chinese car maker's long-standing request to take majority control of their Shanghai GM joint venture. GM resisted in the past, but circumstances had changed. GM also had another agenda: It wanted SAIC's help to expand in India, a market that was just taking off. The post-bankruptcy exit financing provided by the U.S. and Canadian governments resulted in more flexibility for funding international operations. By then, however, GM had already agreed to the deal with SAIC.
In late October GM was the lone participant in a rights offering to stabilize GM Daewoo, investing $416-million, which boosted its stake from 50.1 per cent to 70.1 per cent. Weeks later it announced the surprising shift in ownership of Shanghai GM, along with the news that SAIC would invest $500-million in a new Hong Kong joint venture that would fold GM's existing India operations into the companies' efforts to expand Wuling's low-cost products to new markets.
Even GM's newly activist board, which had put the brakes on the Opel sale, questioned the wisdom of giving up ground in China, according to sources familiar with the board's deliberations. But executives assured directors that GM's interests wouldn't be compromised.
"People need to understand how relationships work in China," says Wale. "It's not about control. It's about trust and willingness to work together to be successful. We could have 90 per cent shareholding. If we didn't have their trust we wouldn't be successful in China." He adds: "New boards always push back. We've got to educate them." Wale invited the directors to visit China in June. In March they agreed, but "due to complexities associated with international travel and scheduling conflicts of some members," a spokesman says, the trip was scrapped.
GM first began working with SAIC in 1997. Today it has ten joint ventures in China, plus two wholly owned subsidiaries, ten assembly plants (one fewer than in the U.S.) and 32,000 employees. (In the U.S. GM employs 77,000.)
Going into business with China's largest auto maker was applauded from the start. But GM's decision to invest in Wuling was another story. Based in the southern industrial city of Luizhou, Wuling was one of about 100 state-owned car makers in China when it approached GM in 1998 about a possible joint venture to get technical help after its previous partner, Japan's Mitsubishi, scaled back.
But GM executives were skeptical about teaming up with a maker of cheap mini-commercial vehicles. Besides, Wuling was a distant fourth in the segment, with an 11 per cent market share, far behind the market leader, Chang'an Motor, which had 40 per cent.
Philip Murtaugh, who was then president of GM China (until he resigned abruptly in 2005), saw more potential in a Wuling deal but wanted to keep GM's alliance options open, since China's central government limited foreign-based car makers to just two joint ventures each for passenger cars and commercial vehicles.
GM's solution was to limit its exposure by investing in Wuling as an extension of its existing joint venture with SAIC. So in a two-step deal SAIC acquired controlling interest in Wuling in 2001 and restructured it the following year when GM became a partner with a 34 per cent stake.
But now, after watching Wuling sales explode in China--it has leaped to number one in the segment with a 45% share--GM wishes it had taken a bigger stake. "Eleven years ago nobody inside GM expected the business to be anything like the success we've seen," said Joseph Liu, executive vice president of Shanghai GM, the U.S. car maker's ranking executive in that original joint venture.
GM would like to buy out the city of Luizhou's remaining 15.9 per cent interest in the Wuling jv, which would give it a 49.9 per cent stake compared to SAIC's 50.1 per cent. But sources in China say Luizhou city officials smell an opportunity and don't want to sell.
To call the Wuling Sunshine cheap is an understatement. The dashboard and interior panels are made of hard plastic, not the textured "soft" plastic Americans are accustomed to. Instead of carpeting, thin plastic covers the floor. Top speed is about 80 miles per hour. Air-conditioning is a $366 option. There aren't any air bags. The Sunshine would never pass U.S. crash safety standards.
Instead of high-strength steel, China allows the use of lesser grades. In the U.S. GM and other car makers often engineer their vehicles to exceed government standards by as much as 100 per cent. Wuling managers consider such overachievement wasteful. As a result, says executive vice president Matthew Tsien, a Chinese-American who has worked for GM for 28 years, Wuling can design a car for 25 per cent of what it generally costs to develop a new vehicle in the U.S.
GM has never been able to make money on small cars in the U.S. But Wuling does quite nicely. Our sources in China peg Wuling's profit margin (before interest and taxes) at close to 10 per cent --stellar for the global auto industry.
"You've got to truly understand what the customer is willing to pay for and not put more in the car than they'll pay for," says Tsien. The Sunshine and a half-dozen other Wuling models share the same underpinnings, which date to the mid-1980s. They have been enhanced over the years; the car maker improved the suspension and strengthened the chassis in 2004, and introduced more advanced GM-designed engines two years ago. Other changes have been minor, which means Wuling's investment costs have been low.
The company is as threadbare as the cars it makes. When the Wuling joint venture began in 2002, the company was selling 140,000 vehicles a year and had 400 people in the sales department. In 2009 sales were topping 1 million units with 100 fewer sales employees. The Luizhou factory is a UAW shop steward's nightmare: no heat or air-conditioning, just fans. Analysts estimate workers earn around $150 a month, versus $28 an hour in Detroit plants. Management has it little better. In the winter Tsien wears a jacket in his chilly, sparsely decorated office.
Wuling's success has drawn attention from once-skeptical GM executives. But as GM has taken a greater interest, Tsien said, he and his Chinese counterparts have had to work hard to protect Wuling's low-cost business model from Detroit-style bureaucracy. Sometimes GM's methods can help. GM taught Wuling a system to validate parts quality from Chinese suppliers, for instance. But Wuling management has steadfastly refused attempts by the home office to push new manufacturing methods in the name of efficiency. When Wuling built an addition to its Luizhou factory recently, it did so without replacing human labour with a lot of automation. Wuling rejected GM's suggestion that it install a flexible body shop (capable of building three different models on the same assembly line) because it was cheaper to buy three separate fixtures. "If it was simple, everyone would be a premium low-cost manufacturer," says Tsien.
GM is learning. Its Patac engineering center in Shanghai--whose sole function initially was to adapt Western models for Chinese tastes--is now designing and engineering vehicles from the ground up.
The Chevrolet New Sail, which went on sale in China in January, is a subcompact that will be the basis for a lineup of low-cost passenger cars. It comes with a larger backseat than most subcompacts have, a 1.2- or 1.4-liter engine, two air bags and a four-star crash rating. But it uses lower-grade steel and less window-glazing than U.S. cars and has fewer gauges on the instrument panel.
At a price of $8,400 to $10,100, GM figures, the New Sail will be profitable on high volumes in multiple countries, including about 150,000 a year in China.
"A lot of the solutions that worked in China are equally applicable to other parts of Asia," says Wale. If so, China will save this company.
On the congested streets of Shanghai, where drivers pay no heed to painted lane stripes, Buicks jockey for position with Toyotas, Audis and Volkswagens, honking as they manoeuvre through traffic made worse by the city's frenetic development.
But away from China's traditional wealth centres, in cities like Kunming and Zhengzhou and in vast rural areas, the roads are populated by entirely different vehicles: bicycles, scooters and Western knockoff cars bearing the badges of obscure Chinese brands.
One vehicle is ubiquitous throughout the Chinese countryside: the Wuling Sunshine. Reminiscent of a 1960s-era VW "hippie bus"--but half the size--the Sunshine is the vehicle of choice for China's small business owners and farmers, who use it to haul everything from electronics to sugarcane.
The new king of subcompacts
The new Ford Fiesta could change Canada's mind about subcompacts and force competitors to take notice
View
.
Priced as low as $4,500 (about 7 per cent above its Chinese competition) and topping out around $9,000, the no-frills Sunshine is by far China's bestselling vehicle, with 597,000 purchased last year. (Government subsidies to rural buyers helped.) The bestselling car in the U.S., the Ford F-series pickup, no longer comes close to that sales level. There are more than 2 million Sunshines on China's roads.
The lucky manufacturer of this bestselling vehicle in the world's largest and fastest-growing market? General Motors--the company that needed a government handout to survive in 2009. In the U.S. and Europe GM may or may not succeed in making cars that consumers want. In China it is producing exactly what customers need: cheap transportation.
GM builds these vans so efficiently with its two Chinese partners that it plans to expand Wuling's entry-level product line to include passenger cars and replicate its low-cost business model throughout the developing world, starting with India.
GM was already a sales leader in China with its Buick and Chevrolet brands. Now its Wuling venture is the cornerstone of a growth strategy. To support the push outside the U.S., GM has quadrupled its engineering and design staff in China over the last few years and is investing $250 million to build a research and development centre on the Shanghai campus of its new international headquarters.
"We're generating a footprint to grow from," says Kevin E. Wale, who oversees the strategy as GM China's president.
Of course GM, which borrowed $50-billion from U.S. taxpayers, has a lot of work to do to repair its business in its home market. But the auto maker's future won't be determined in Detroit or North America. That future, instead, will play out in China and the rest of Asia, where GM is reinventing itself as a lean and highly profitable auto maker.
Five months into his job as chief executive, Edward E. Whitacre Jr. has his hands full. Even if he succeeds in fixing the company's North American operations, the best he can hope for here is to snag a point or two of market share from rivals. GM sold its Saab brand in February and is phasing out Pontiac, Saturn and Hummer to focus on Chevrolet, Cadillac, Buick and GMC. In 2009 it slashed its dealer network, renegotiated its labour contracts and shifted responsibility for retiree health care to a union-controlled trust fund. Despite the painful and needed changes, GM is still unprofitable, and huge challenges remain before it can go public again and pay off the U.S. Treasury, all the while trying to keep election-year politicians at bay.
GM is thankful for its Asian market. China accounts for 24 per cent of GM's sales, and last year China eclipsed the U.S. as the world's largest vehicle market, with 13.6 million units sold, a 46 per cent increase. Through March auto sales in China rose 72 per cent over 2009 to 4.6 million units, according to the China Association of Automobile Manufacturers. Sixteen million vehicles could be sold in China this year.
In 2009 GM and its Chinese partners sold 1.8 million vehicles there, a 67 per cent surge, ending the year with an estimated market share of 13.4 per cent. It sells vehicles in China under the Buick, Cadillac, Chevrolet, Opel, Wuling and Jiefang nameplates. The company expects to sell 2 million cars and trucks in China this year--for the first time more than in the U.S.
GM doesn't break out financial data by country, but its international operations are the only profitable part of the company. While GM overall lost $4.8-billion before interest and taxes during the period between its July 10 emergence from bankruptcy and the end of 2009, its international operations (everything except North America and Europe) earned $1.2-billion. The China joint ventures account for approximately one-third of that profit. For all of 2009 GM's share of earnings from its China partnerships was $764-million.
GM plans to use China as a springboard to growth in other markets in Asia, Latin America and Africa. "The opportunities are almost unlimited," says Timothy E. Lee, president of GM International Operations. Already, GM is selling Wuling vehicles as Chevrolets in Brazil.
Making it happen is Wale's job, which arguably puts the company's future on his back. An affable Australian who began his GM career in the finance department of its Holden subsidiary in 1975, Wale was a senior executive in GM's European operations before being appointed to his current post in 2005.
His biggest challenge: managing China's supercharged growth and making the case for capital while the rest of the company bails water. The China joint ventures kick off enough cash to keep GM China self-funded, but Wale still has to be sensitive to the problems back home. "It's a matter of talking to people and convincing them that we need to keep investing for the opportunity," he says.
But Detroit is a long way from Shanghai. Late last year the cornered car maker ceded control of its largest and most successful joint venture to its ambitious Chinese partner, Shanghai Automotive Industrial Corp. (GM was paid $84.5-million for a 1 per cent stake that tipped the scale.) Management remains the same--three executives for each company--but SAIC gained veto rights and a deciding vote on Shanghai GM's board of directors.
GM says it yielded as a favour to its longtime partner, which wanted to consolidate the joint venture's earnings into its publicly reported financial results. The company insists the partnership hasn't changed and that it has the right to repurchase the 1 per cent stake later.
Analysts aren't buying it. "Anyone who knows China understands that foreign car makers never willingly do favours for Chinese partners like SAIC, who are also fast-emerging competitors, offering their own lines of cars," Michael Dunne, president of China auto consultancy Dunne & Co., wrote on a DetNews.comblog post. Adds Stephen D'Arcy, coleader of PricewaterhouseCoopers' global automotive practice: "When you don't have control, particularly in China, you're kind of at their mercy."
GM had little choice, though. The initial $13.4-billion loan from the U.S. Treasury in December 2008 restricted GM from using taxpayer money to fund its overseas businesses. That's one reason it felt compelled to divest its crucial European Opel division, for instance (a decision later reversed by GM's board).
Then, in the midst of last year's crisis, the Korean unit, GM Daewoo Auto & Technology, made a $500-million hedging mistake on the Korean won. To avoid defaulting on its Korean bank loans, GM Daewoo had to come up with hundreds of millions of dollars in fresh capital. Letting GM Daewoo go bust would have been devastating for GM's global strategy. "Most of the cars GM sells in China begin as kits in Korea," notes Dunne. "Cut off Korea and all of a sudden China's in trouble. The pressure must have been unbelievable."
But GM wasn't free to invest its limited capital in Korea. Its equity partners in the Daewoo venture--Suzuki, the Korea Development Bank and SAIC--all refused to invest fresh funds. (SAIC at the time was dealing with its own embarrassment--the bankruptcy of another Korean car making affiliate, SsangYong Motor Co.)
GM began talking seriously to SAIC about the Chinese car maker's long-standing request to take majority control of their Shanghai GM joint venture. GM resisted in the past, but circumstances had changed. GM also had another agenda: It wanted SAIC's help to expand in India, a market that was just taking off. The post-bankruptcy exit financing provided by the U.S. and Canadian governments resulted in more flexibility for funding international operations. By then, however, GM had already agreed to the deal with SAIC.
In late October GM was the lone participant in a rights offering to stabilize GM Daewoo, investing $416-million, which boosted its stake from 50.1 per cent to 70.1 per cent. Weeks later it announced the surprising shift in ownership of Shanghai GM, along with the news that SAIC would invest $500-million in a new Hong Kong joint venture that would fold GM's existing India operations into the companies' efforts to expand Wuling's low-cost products to new markets.
Even GM's newly activist board, which had put the brakes on the Opel sale, questioned the wisdom of giving up ground in China, according to sources familiar with the board's deliberations. But executives assured directors that GM's interests wouldn't be compromised.
"People need to understand how relationships work in China," says Wale. "It's not about control. It's about trust and willingness to work together to be successful. We could have 90 per cent shareholding. If we didn't have their trust we wouldn't be successful in China." He adds: "New boards always push back. We've got to educate them." Wale invited the directors to visit China in June. In March they agreed, but "due to complexities associated with international travel and scheduling conflicts of some members," a spokesman says, the trip was scrapped.
GM first began working with SAIC in 1997. Today it has ten joint ventures in China, plus two wholly owned subsidiaries, ten assembly plants (one fewer than in the U.S.) and 32,000 employees. (In the U.S. GM employs 77,000.)
Going into business with China's largest auto maker was applauded from the start. But GM's decision to invest in Wuling was another story. Based in the southern industrial city of Luizhou, Wuling was one of about 100 state-owned car makers in China when it approached GM in 1998 about a possible joint venture to get technical help after its previous partner, Japan's Mitsubishi, scaled back.
But GM executives were skeptical about teaming up with a maker of cheap mini-commercial vehicles. Besides, Wuling was a distant fourth in the segment, with an 11 per cent market share, far behind the market leader, Chang'an Motor, which had 40 per cent.
Philip Murtaugh, who was then president of GM China (until he resigned abruptly in 2005), saw more potential in a Wuling deal but wanted to keep GM's alliance options open, since China's central government limited foreign-based car makers to just two joint ventures each for passenger cars and commercial vehicles.
GM's solution was to limit its exposure by investing in Wuling as an extension of its existing joint venture with SAIC. So in a two-step deal SAIC acquired controlling interest in Wuling in 2001 and restructured it the following year when GM became a partner with a 34 per cent stake.
But now, after watching Wuling sales explode in China--it has leaped to number one in the segment with a 45% share--GM wishes it had taken a bigger stake. "Eleven years ago nobody inside GM expected the business to be anything like the success we've seen," said Joseph Liu, executive vice president of Shanghai GM, the U.S. car maker's ranking executive in that original joint venture.
GM would like to buy out the city of Luizhou's remaining 15.9 per cent interest in the Wuling jv, which would give it a 49.9 per cent stake compared to SAIC's 50.1 per cent. But sources in China say Luizhou city officials smell an opportunity and don't want to sell.
To call the Wuling Sunshine cheap is an understatement. The dashboard and interior panels are made of hard plastic, not the textured "soft" plastic Americans are accustomed to. Instead of carpeting, thin plastic covers the floor. Top speed is about 80 miles per hour. Air-conditioning is a $366 option. There aren't any air bags. The Sunshine would never pass U.S. crash safety standards.
Instead of high-strength steel, China allows the use of lesser grades. In the U.S. GM and other car makers often engineer their vehicles to exceed government standards by as much as 100 per cent. Wuling managers consider such overachievement wasteful. As a result, says executive vice president Matthew Tsien, a Chinese-American who has worked for GM for 28 years, Wuling can design a car for 25 per cent of what it generally costs to develop a new vehicle in the U.S.
GM has never been able to make money on small cars in the U.S. But Wuling does quite nicely. Our sources in China peg Wuling's profit margin (before interest and taxes) at close to 10 per cent --stellar for the global auto industry.
"You've got to truly understand what the customer is willing to pay for and not put more in the car than they'll pay for," says Tsien. The Sunshine and a half-dozen other Wuling models share the same underpinnings, which date to the mid-1980s. They have been enhanced over the years; the car maker improved the suspension and strengthened the chassis in 2004, and introduced more advanced GM-designed engines two years ago. Other changes have been minor, which means Wuling's investment costs have been low.
The company is as threadbare as the cars it makes. When the Wuling joint venture began in 2002, the company was selling 140,000 vehicles a year and had 400 people in the sales department. In 2009 sales were topping 1 million units with 100 fewer sales employees. The Luizhou factory is a UAW shop steward's nightmare: no heat or air-conditioning, just fans. Analysts estimate workers earn around $150 a month, versus $28 an hour in Detroit plants. Management has it little better. In the winter Tsien wears a jacket in his chilly, sparsely decorated office.
Wuling's success has drawn attention from once-skeptical GM executives. But as GM has taken a greater interest, Tsien said, he and his Chinese counterparts have had to work hard to protect Wuling's low-cost business model from Detroit-style bureaucracy. Sometimes GM's methods can help. GM taught Wuling a system to validate parts quality from Chinese suppliers, for instance. But Wuling management has steadfastly refused attempts by the home office to push new manufacturing methods in the name of efficiency. When Wuling built an addition to its Luizhou factory recently, it did so without replacing human labour with a lot of automation. Wuling rejected GM's suggestion that it install a flexible body shop (capable of building three different models on the same assembly line) because it was cheaper to buy three separate fixtures. "If it was simple, everyone would be a premium low-cost manufacturer," says Tsien.
GM is learning. Its Patac engineering center in Shanghai--whose sole function initially was to adapt Western models for Chinese tastes--is now designing and engineering vehicles from the ground up.
The Chevrolet New Sail, which went on sale in China in January, is a subcompact that will be the basis for a lineup of low-cost passenger cars. It comes with a larger backseat than most subcompacts have, a 1.2- or 1.4-liter engine, two air bags and a four-star crash rating. But it uses lower-grade steel and less window-glazing than U.S. cars and has fewer gauges on the instrument panel.
At a price of $8,400 to $10,100, GM figures, the New Sail will be profitable on high volumes in multiple countries, including about 150,000 a year in China.
"A lot of the solutions that worked in China are equally applicable to other parts of Asia," says Wale. If so, China will save this company.
