August 8, 2011
http://detnews.com/article/20110808/AUTO01/108080370
GM’s Wuling venture reaches for the masses in ChinaCHRISTINE TIERNEY/ The Detroit News
Liuzhou, China
The sprawling Wuling factory in this provincial town isn't one of the most advanced assembly plants that General Motors Co. and its venture partners operate in China, but it's among the busiest. Here, during three shifts a day, six days a week, workers turn out sturdy little vans and trucks priced as low as $4,300.
These Wuling-brand "minivehicles," as they're called, double as easy-to-load commercial vehicles by day and family haulers at night, fitting the needs and budgets of farmers and small businesses in China's hardscrabble interior.
These new customers, mostly first-time buyers climbing out of poverty, are part of a surge of tens of millions of people across Asia who are making just enough money to buy or think about buying a vehicle.
GM and its Chinese partner, Shanghai Automotive Industry Corp., are now drawing on Wuling to reach them. Using Wuling's vehicle "architecture," or underpinnings, GM and its partners are developing low-cost models for India — the next big automotive battleground.
The world's leading automakers — GM, Ford Motor Co., Toyota Motor Corp. and their rivals — all are plowing investments into emerging markets and developing vehicles to attract these new customers, who will be the industry's main source of growth.
"Many markets are reaching the takeoff stage," said Joe Hinrichs, head of Ford's Asia-Pacific region.
By 2020, global auto sales are expected to rise to 110 million a year, an increase of 38 million vehicles from 2010 levels. Emerging markets will account for about 30 million of the additional sales, according to consulting firm IHS Automotive.
For U.S., Japanese and European automakers grappling with saturated or even shrinking home markets, the growth prospects offer a reprieve. Ford estimates there are 1.3 billion potential drivers in countries with per-capita incomes ranging between $5,000 and $15,000 — when car ownership starts to rise steeply.
The Dearborn automaker is building seven plants in Asia, including a $1 billion Indian car and engine factory complex. Nissan Motor Co. said last month it was doubling its production capacity in Indonesia and other southeast Asian countries.
Investing in emerging markets is risky and always has been because of the boom-and-bust cycles, political instability and changing rules. But automakers are assuming those risks.
"It's a bigger risk not to be there than to be there," says IHS analyst Michael Robinet. "That's where the growth is going to be."
The tricky part for automakers is to produce cars these new buyers can afford and still manage to turn a profit.
India is particularly challenging. Global automakers are competing against homegrown models, such as Tata Motors' Nano minicar starting at $3,150.
Ford estimates 70 percent of cars sold in India are priced under $8,500 — well below the entry level in the United States.
Automakers are pursuing various approaches to meet these customers' needs — and compete with new rivals, such as Chinese automakers turning up in Brazil, as Sergio Marchionne, CEO of Fiat SpA and Chrysler Group LLC, noted last week.
Some automakers, such as GM, are working with smart local manufacturers, such as Wuling.
GM has done this before, selling low-cost vehicles designed and built by its Daewoo carmaker in South Korea in other countries, under other brands.
Similarly, Renault SA has teamed with Bajaj Auto of India to develop a minicar that would be priced below $3,000. Volkswagen AG has bought a stake in Suzuki Motor Corp., a Japanese producer of low-cost cars and a leading player in India.
Toyota has been designing vehicles for developing economies since the '70s and has rolled out the first in a series of "emerging market family cars" in India.
Ford, meanwhile, plans to sell Ford-brand vehicles with less content and technology — and a lower price — to compete "in the heart rather than at the top of these segments," said Chief Financial Officer Lewis Booth.
Hyundai Motor Co. has expanded rapidly in India, where it's pushing beyond the cities and into rural regions. In China, it sells the new Elantra Yuedong in large cities where consumers are more sensitive to trends, and an older Elantra in smaller cities.
China, India keep growing
Most automakers have product development and manufacturing plans in place in China, which is "far and away the tall pole in the tent," in the words of Tim Lee, president of GM International Operations.
China is the world's biggest market, with more than 18 million vehicle sales in 2010, and it's forecast to keep growing as wealth spreads to inland and border provinces, such as Guangxi, where Wuling Motors is based.
Customers from these regions turned Wuling into the top-selling brand in China of all of GM's ventures with Shanghai Automotive. Led by the popular Sunshine van starting at $4,600, Wuling outsold Chevrolet, Buick and the other brands combined last year.
Wuling keeps its costs low by building its commercial vehicles — more than 1 million a year — on shared underpinnings.
"We have one basic platform," which Wuling and its partners continually improve, said Matt Tsien, a GM executive assigned in 2009 to the Shanghai-GM-Wuling venture, where he is a vice president and oversees the Technical Development Center. (The venture is 50.1 percent owned by Shanghai Automotive; 44 percent owned by GM, and Wuling Motors has 5.9 percent.)
In India, by selling vans or other commercial vehicles using Wuling "architecture," GM will start competing in a segment that accounts for 40 percent of the market, said Karl Slym, president of GM India. GM doesn't offer anything in that segment now.
Over the past year, GM has slipped behind Toyota, Volkswagen AG and Ford in India, according to J.D. Power and Associates. Ford's sales surged after it brought the Ford Figo, an $8,000 minicar built on a previous generation Fiesta platform.
India is far smaller than China, with just more than 3 million cars and trucks sold in 2010. But GM expects the Indian market to become the world's third-largest.
Ford, sticking with its "One Ford" strategy of one global brand and model range, plans to sell "value-enabled" versions of Ford global models in emerging markets. They will cost between $1,000 and $2,000 less to produce than fully equipped cars sold in established markets.
But the differences wouldn't be jarring. Rear windows in a "value-enabled" model might have handles, for instance, rather than power controls, Booth said.
"It's still a Ford. It's still best in class at the things we want to be best in class at," he said.
Profit margins slim
Investors are concerned because these vehicles, which will account for an increasing percentage of Ford's sales, will have slimmer profit margins than vehicles sold in North America.
But Booth says the additional sales will pad the bottom line by increasing the economies of scale for the global platforms.
Ford executives told investors at a June presentation that even as the automaker expands in emerging markets, it expects operating earnings to rise from 6.1 percent of revenue in 2010 to between 8 percent and 9 percent toward the middle of the decade.
"This is an important stage in the company's development," Booth said.
"The only risk is if we don't do it."
ctierney@detnews.com(313) 443-2279
Additional Facts
Toyota’s emerging market car
Toyota has been designing platforms for low-cost models since the 1970s, when it produced multipurpose vehicles for Indonesia and other developing economies. It fields Daihatsu-brand cars in emerging markets, and in recent years, it has produced trucks, vans and SUVs on a platform designed for emerging markets and their rough roads. Toyota’s latest project is the "emerging-market family car," conceived from the ground up for customers of modest means. The cars are designed to be reliable and safe, and to meet the needs of emerging-market customers — roomy interiors to transport families, and affordable repairs. Toyota launched the first model in the series, the Etios sedan, costing $10,500, in India in December. It rolled out the Etios Liva hatchback, priced at $8,900, in June. Toyota engineers examined all parts and features to cut costs. "Usually a vehicle has a separate filament for the condenser, the air conditioner and other related parts," said Toyota spokesman Dion Corbett. "For the Etios, Toyota developed a combined system that allowed only one filament to be used for four parts." Toyota hasn’t said where it will sell the Etios next, but analysts say it will be sold next year in Brazil, Thailand and China. Toyota’s rival Honda Motor Co. is launching the Brio — a car one size below the Fit subcompact — in India and in Thailand this year.
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