Amazing how you can transform the life of people by building roads, bridges, car factory
GM Bets Big on Rural China Markets
Success of Microvans Prompts Push to Manufacture Other No-Frills Vehicles for Emerging Consumers.
GM China Shifts Focus to Rural Demand for No-Frills Vehicles - WSJ.com
By NORIHIKO SHIROUZU
HUANGZHONG VILLAGE, China—Farmer Zhang Zuoming and his extended family's growing fleet of microvans in this dusty village in China's far west explains why General Motors Co. is rushing to recalibrate its China strategy.
As a decade-long boom in car sales along the prosperous coast eases, inland villages like this one have become the new sales frontier for GM and other foreign auto makers.
Inexpensive microvans, on a Liuzhou, China, assembly line, have helped wheat farmer Zhang Zuoming become an entrepreneur.
Huangzhong villagers are part of a larger swath of people in less developed parts of China becoming rich enough to buy a no-frills car. Their growing demand for cheap yet sturdy vehicles is at the heart of GM's strategy to double its sales in China to around five million units by 2015 from about 2.35 million in 2010.
Roughly half of all the vehicles that GM sells in China are Wuling microvans, made by a company in which GM has a 44% stake. The other primary partner in the venture is SAIC Motor Corp., GM's main joint venture partner in China, which owns 50%. The rest is owned by a local company in southern China where SAIC GM Wuling Automobile Co. is based.
As General Motors makes a push into China's automotive hinterland, SAIC-GM Wuling executive Scott Tien introduces WSJ's Norihiko Shirouzu to the little truck that's come to dominate the country's rural roadways.
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Wuling is now scouting for a location to build a third manufacturing complex to meet explosive demand. With GM's help, the Wuling joint venture also launched a second low-cost brand called Baojun (which means "treasured horse") last year. Its first product, a sedan called the Baojun 630, was recently unveiled at the Shanghai auto show.
GM estimates that the market for low-cost cars in China already amounts to six million vehicles a year—bigger than major auto markets such as France and Japan. It is dominated by local companies including Zhejiang Geely Holding Group and Chery Automobile Co.
"The decade of 2000 to 2010 was an era marked by very dramatic growth on the coast. But real growth is going to happen now more toward the interior of the country," says Wuling Executive Vice President Matthew Tsien, a 28-year GM veteran who has been sent into China to improve Wuling's performance.
Four years ago, Mr. Zhang lost his supplementary factory job as his employer for nearly two decades folded after failing to meet government environmental standards.
The 2,000-yuan-a-year job—about $310—wasn't high-paying, but the 41-year-old didn't want to go back to his 500-yuan-a-year life as a full-time wheat farmer. The decision he made in 2007, to buy a $4,500 Wuling microvan, with government subsidies, transformed his life.
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Norihiko Shirouzu/The Wall Street Journal
Zhang Zuoming
Today he drives his workhorse van, and a second Wuling model he added in 2008, to haul goods. He brings home 50,000 yuan a year and has used the new wealth to remodel his house and take his father and other relatives to Beijing for sightseeing. Mr. Zhang, his brothers and nephews in Huangzhong, 15 miles outside Xining, capital of the far-Western province of Qinghai, have since bought four more Wuling vans. Other villagers have followed suit.
"My whole family needs to eat, and we totally count on these Wuling vans," Mr. Zhang says in his living room, gesturing toward one of the Wulings parked outside his house. "This has brought real happiness and joy around here." He was able to buy his second Wuling with a windfall profit he made when the government paid him compensation for some of his land it annexed to build a power plant.
According to an estimate by U.S. consulting firm Alix Partners, the number of households in China with annual income of more than 60,000 yuan—a level deemed sufficient for a family to buy a no-frills car—is estimated to nearly double over the next four years to 65.6 million.
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Since 2002, GM has been working with Wuling, a relatively unknown producer of microvans in Liuzhou, an industrial hub in the poor southern province of Guangxi. The move has paid off handsomely. Wuling has seen its sales surge nearly eight fold since 2002 to 1.15 million microvans last year.
As sales growth slows in big cities on China's eastern seaboard—in part because of traffic-fighting restrictions on car sales and market saturation—GM and SAIC are making fresh moves to penetrate inland regions.
GM's Mr. Tsien says the site for the new Wuling plant the joint venture is thinking about building most likely would be sited in an inland province like Sichuan. He says Wuling has already been adding capacity since late last year to the existing plants, a move that will boost the company's overall capacity to 1.3 million vehicles a year this year.
GM and SAIC are so sure of the new Baojun brand's potential in inland Chinese cities, that they are ready to build an all-new factory dedicated to the vehicle in Liuzhou with capacity to produce 400,000 a year. The plant will start production by the end of 2012.
"There's a massive market for people who want affordable vehicles," said Kevin Wale, head of GM's China operations.
GM faces competition. A joint venture between Nissan Motor Co. and Dongfeng Motor Group Co., for example, has announced plans to launch a China-only brand, Qichen, which is due to start selling its own no-frills cars in 2012.
Wuling began building mini farm trucks in the 1960s and entered a segment that has come to be known as "mini commercial vehicles," or microvans, in the mid-1980s with technological assistance from Japan's Mitsubishi Motors Corp. and Daihatsu Motor Co. SAIC invested in Wuling in 2001, and GM did so the following year.
Since 2002, GM and SAIC helped Wuling improve what were spartan workhorse vehicles used primarily by farmers and small shop owners. They provided technology and made them more reliable and durable for the pot-holed roads they travel along.
For a swelling tide of households in China who are now wealthy enough to buy cars, boxy Wuling vans come with bare-bone features. Some have one airbag as an option, and navigation systems are not offered at all. CD players, air-conditioning, power windows and power locks are all optional features.
When GM first bought its stake in Wuling, the brand sold 147,000 vehicles that year and "was struggling to be profitable," Mr. Tsien says. It was an important investment for GM, but within the company it was hardly noticed.
"If somebody were to mention [Wuling], I would not have known what it was, and I worked for GM," he says. "So clearly our significance has increased."
Wuling is fast evolving into a centerpiece of GM's global strategy, as demand for its thrifty vans takes off.
Another satisfied customer is Ba Peijun, who runs a small meat-delivery service in a rural village called Gongmazhuang outside the central Chinese city of Zhengzhou. The 48-year-old villager's business began taking off after he bought a Wuling van in 2004 for 36,500 yuan with loans from his sister and friends.
"Wuling van quality is really great. It is sturdy, seldom needs repair," Mr. Ba said. "It can haul more cargo—more or less double what I was able to carry on my old van. It's of great help to my business." By 2008, thanks in part to the new van, Mr. Ba was able to save enough money to start a second business—a pancake restaurant. He has since bought a second car, a VW Santana.
So many villagers in Gongmazhuang have purchased Wuling vans that people around the place often refer to it as Wuling Village.
http://online.wsj.com/video/gm-china...C3B19C100.html
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Originally Posted by Hendrik_2000
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