|GM is confident that brand-conscious Chinese would rather drive a Buick.|
“More and more people are becoming middle class and can afford a car,” says Phil Murtaugh, chairman and chief executive of GM China Group.
At least 3.4 million vehicles are expected to be sold in China by the end of 2002. But experts say by the time the numbers are added up, growth could be even higher. Estimates made earlier in 2002 were a million units less and had to be revised as the strong growth continued.
“This year we’ve just seen explosive growth,” Murtaugh says.
Much of the growth was pent up demand from last year. The growth has been huge and sustainable, he says.
Some of the growth was also spurred by new regulations that changed the terms of loans and who controlled the financing.
As of this year, foreign companies can participate in making loans. Formerly all financing was done by Chinese banks and only about 10 percent of buyers financed cars. That number is creeping up and by the end of the year it should top 15 percent.
Additionally, car buyers had to pay 30 percent of the vehicle’s price in cash and had to have the remaining 70 percent in the bank for collateral. Now buyers can use the vehicle for collateral.
Chinese views on loans are also changing. While the Chinese culture is very debt adverse, says Murtaugh, the younger generations are more and more willing to take on debt. Still, they have very low default rates.
“They pay back their debts,” he says. “It’s a pride issue.”
As part of WTO, the government also is reducing its import tariffs. Formerly at 100 percent for vehicles with engines larger than 3.0L and 80 percent for vehicles below 2.9L, the tariffs on all vehicles will drop to 25 percent by 2006.
Foreign companies also will be able to import, distribute, sell and service their products where in the past, importing and distribution was done by a Chinese company.
Even with these provisions, Murtaugh doesn’t feel imported vehicles will be a major problem. He says they will remain at only about 10 percent of sales. Instead, companies will continue to set up manufacturing facilities as most of the major OEMs — including GM, VW, Honda, Nissan, Toyota and PSA Peugeot Citro?n — have done.
“I really don’t think imports are going to make a big difference,” Murtaugh says. “GM is concentrating on local production.”
The company currently has four joint ventures in China and is considering adding another. GM recently confirmed it, along with its partner, Shanghai Automotive Industry Corp., is in talks to buy a stake in Yantai Body Co.
Even though GM is an American company Chinese consumers view its vehicles as domestic products. Furthermore, they recognize the Buick name and associate prestige with it.
“Chinese consumers are very, very brand conscious,” he says. “They buy Prada. They buy Louis Vuitton. They buy Coca-Cola.”
They also buy GM. The company has a 7.6 percent market share in the country — up from the 2.5 percent it had in 2001.
“I like our position,” says Murtaugh. “Everyone else has to catch up.” GM is confident that brand-conscious Chinese would rather drive a buick.