General Motors is the largest car manufacturer in the world’s largest market. This is not GM in the US, but General Motors in China, where the market grew from 640,000 units in 2000 to over 11 million in 2010.
Michael Dunne captures the journey of GM in China from its first attempts to enter that market to the year 2010 when it was the largest car maker there.
The story is not only of the Chinese car market but a perspective on Chinese policy and decision making, and the role of the Centre and Provinces. There is a deep insight into the management contradictions within General Motors and also the strategy adopted by both multinational rivals and Chinese car makers to gain market share.
GM’s first venture in China in 1992 to build pickup trucks in Shenyang was a year after China granted licences to Volkswagen and Citroën. But the GM product did not meet Chinese buyer expectations.
Chance played a key role in opening a door for GM to enter China. When Lu Jian, chairman of SAIC, learnt that David Shi Chen, who then worked in the Robotics Lab in the GM Technical Centre, was to meet then Chinese Vice Premier Zhu Rongji, he requested Chen “to see whether Zhu would allow SAIC to set up a second car joint venture”. Zhu told Chen “if it is in Pudong, I don’t see why not”.
This was also the time when GM was undergoing a top management change and Jack Smith was appointed president and CEO. Richard Swando, then in charge of GM operations out of Hong Kong, felt if GM could manage to get things right, the car business in China would be lucrative. Jack Smith, Swando, and the new head of the China business, Philip Murtaugh, led GM’s efforts to “open up the China market”.
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GM was informed in March 1995 that it had submitted the best bid. The decision from Beijing came in November 1995, the agreement was signed in 1997 and the first product was ready in 1999.
The book offers a ringside view of the intense rivalry within GM, and the complex decision-making process.
The approach by Jack Smith to look at the joint venture as a partnership and Philip Murtaugh’s position on SAIC-GM led to a very different relationship between SAIC and GM. The first Buick Century that hit the market did not inspire buyers.
A startling finding by GM was that it did not have a China-specific product. “Buick Sail was a temporary bandage to patch the fresh wounds of Chinese dealers…,” he writes. GM’s acquisition of Daewoo allowed it to package the Excelle as a Buick Excelle and introduce it in China. This product and the refreshing of the Buick Century as the Regal led to increased sales for GM.
Another joint venture, SAIC-GM-Wuling, was created in June 2002. Liuzhou soon became an important engine manufacturing base for GM followed by another centre in Qingdao. During this time, GM Detroit wanted to get its hand around China. GM International moved from Singapore to Shanghai. The complex web of reporting led to Phil leaving GM and Kevin Wale taking over.
Then came the economic downturn. But, China cut taxes on cars with small engines and increased subsidies to buyers of mini vehicles. The response was immediate.
The story of how SAIC helped GM during the crisis in Korea is very interesting. But, it does not fully cover the agreement leading to GM taking a minority share in the joint venture.
Dunne shares his knowledge of the Chinese as he explains that for GM, the journey was not easy. “You needed to know the Chinese way of doing business,” he says. “To start a business in China, you need a license; you are invited to play the game. In [the] car industry, you need a local partner, usually a municipality like Shanghai or the Government”.
Every Mayor wanted a piece of automobile action, be it in Beijing, Guangzhou, Wuhan and Chongqing. The example of Chery clearly brings out the role of local governments.
A list of prohibitive rules was often followed by declaration that China welcomes foreign investments. Chinese policy makers have a knack of creating competition between potential rivals as exemplified by the battle between Ford and GM and later between Volkswagen and GM.
The Chinese have their own way of determining products that would work in China, for example, their insistence that the GM car should be a Buick. “Correct naming of things” is one of the core features of Chinese culture. “Any business should expect to encounter walls, road blocks and other obstructions in China,” Dunne says. So firms “must find ways over, under and around them”.
These and other interesting examples of the way Chinese government and officials work make this an invaluable book for those who are seeking to understand China and the Chinese regulation making.The story is well told with an insider’s view of the challenges and the triumphs.
The reviewer is former director general of the Society of Indian Automobile Manufacturers.
AMERICAN WHEELS, CHIENESE ROADS
The Story of General Motors in China
Michael J Dunne
John Wiley & Sons; 227 pages