GM expects China sales growth
(Reuters)
Updated: 2006-01-10 11:15

General Motors Corp. expects its sales in China to outstrip gains in the still-booming market, which is projected to grow by between 10 and 15 percent this year, senior executives said on Monday.

GM, which operates in a partnership with Shanghai Auto, sold 665,000 cars in China in 2005 and has taken the top spot there in terms of market share with its Buick brand.

For GM, which has been struggling to stem market losses in the United States as it works to contain labor and pension costs, its performance in Asia -- and China in particular -- has been a rare bright spot.

GM's overall sales in Asia topped 1 million cars in 2005 for the first time and the company posted 35 percent sales growth in China, an auto market on track to overtake Japan as the world's second largest.

"Our goal has been to just outpace the market," Troy Clarke, president of GM Asia Pacific told Reuters.

But the growth in China's auto market has brought more competition, pressuring profit margins for automakers such as GM that have had to cut prices to lure customers to showrooms.

"Margins are dropping," Clarke said, adding that a round of industry-wide price cuts came in mid-2004 and early 2005 as more industry-wide production capacity came online in China.

"We anticipate that we'll see the same thing in the first and second quarter of 2006. This is one of the reasons we have to focus on supply-chain costs," Clarke said. "If we don't figure out how to get those costs to go down at a faster rate, we could see more margin compression. Everybody is aware of that."

Shanghai Auto, which also has a partnership with Volkswagen (VOWG.DE), is gearing up for a stock listing at home or abroad that could raise as much as $2 billion.

China's long-term goal remains to develop a home-grown brand for export abroad, and Clark said GM could be interested in some kind of partnership along those lines in the future.

"There are no discussions. There are no plans, but it's not something that I would rule out. If you think of it, there are many parallels," he said, citing GM's 20-percent stake in Japan's Suzuki Motor Corp. (7269.T)

Meanwhile, GM is aiming to use its Cadillac brand to retain newly rich buyers in China even as it markets the Buick brand to up-and-coming young professionals, said Kevin Wale, GM's managing director for China. The company sold 2,000 Cadillacs in China last year, he said.

Wale said GM plans to introduce its first hybrid models in China in 2008.