GM in China: eventful week for carmaker

GM in China: eventful week for carmaker

Published: February 25 2011 15:02 | Last updated: February 25 2011 20:01
The famous and often misquoted line about what was good for General Motors being good for the US had become less apparent over the past several years. But the sentiment remained entrenched enough to underpin GM’s $80bn rescue half a century later. In an eventful and mostly positive week for the carmaker though, the emphasis was increasingly on a car market that practically did not exist back in GM’s 1950s heyday: China.

For the first time, GM’s Chinese unit sales exceeded its North American deliveries. With China being by far the world’s largest car market, even efforts to cool demand in large cities such as Beijing leave plenty of room for growth. GM sees another 10-15 per cent increase in unit sales there this year. Its Chinese surge could even reclaim its bragging rights as top global carmaker, a long-held position it ceded to Toyota as GM descended into bankruptcy. With its US rebound shifting into a somewhat lower gear, it is little wonder GM’s chief called China its “crown jewel”.

Some perspective is warranted. GM mostly sells smaller, less lucrative vehicles there and does so through joint ventures. UBS reckons that profitability per unit is about one-fifth that of North America and values the Chinese venture at $6 a share, or less than one-third of its core auto operations.

Barring an unexpected slowdown, China will boost GM’s unit sales handsomely in the near-term. With more than 100 manufacturers, industry consolidation should initially benefit big players such as GM. But consolidation will also lay the foundation for stronger purely local carmakers and, some time soon, competition from Chinese companies back home in the US fortified with technology from their foreign JV partners. How do you say “double-edged sword” in Mandarin?