Recall "MiniCase 18: Does GM's Future Lie in China?" Think about the last automobile that you purchased. What could GM learn about your needs as an auto buyer that would assist them in growing their market share domestically?

MiniCase 18 Does GM's Future Lie in China?

GIVEN THE SHEER SIZE OF THE U.S. automotive market, the "old" GM concentrated mainly on its domestic market. GM once held more than 50 percent market share in the United States and was the leader in global car sales (by units) between 1931 and 2007, before filing for bankruptcy in 2009.1 In its heyday, GM employed 350,000 U.S. workers and was an American icon. The future for the "new" GM may lie overseas, most notably in China. Some 65 percent of GM's revenues are now from outside the United States. This is quite a high level of globalization for a company that once was focused more or less on the domestic market only. The Chinese market is becoming more and more important to GM's performance. In 2016, GM sold 3.9 million vehicles in China alone, which is 39 percent of total GM cars sold. As shown in Exhibit MC18.1, China's share of GM's total sales is on a steady climb, reaching 40 percent of total revenues in 2017 (Q1). EXHIBIT MC18.1 / GM's Number of Vehicles Sold by Geographical Location (in thousands), 2014-2016. SOURCE: Depiction of data from 2016 GM Annual Report. With a population of 1.4 billion and currently only 11 vehicles per 100 peoplecompared with a vehicle density of 81 per 100 in the United StatesChina offers tremendous growth opportunities for the automotive industry. Since China joined the World Trade Organization (WTO) in 2001, its domestic auto market has been growing rapidly and has now overtaken the United States as the largest in the world. Although the growth of the Chinese auto market has slowed in recent years because of the economy's downturn, GM CEO Mary Barra remains convinced that China offers significant long-term growth opportunities. Unlike some of its main rivals, GM entered the Chinese market early. In 1997, GM formed a joint venture with Shanghai Automotive Industrial Corp. (SAIC), one of the "big four" Chinese carmakers. SAIC is one of the largest companies worldwide and included in the Fortune Global 100 list (ranked 46th, just behind Amazon.com and before Hewlett-Packard).2 Over 30 years, GM was able to develop guanxisocial networks and relationships that facilitate business dealingswith its Chinese business partners and government officials. Mary Barra, CEO General Motors, is refocusing GM on the U.S. home market and China, among other developing economies, while exiting Europe. Tomohiro Ohsumi/Bloomberg/Getty Images GM's China operation has been cost-competitive from day one. The company operates about the same number of assembly plants in China as in the United States, but sells more vehicles while employing about half the number of employees. Chinese workers cost page 510only a fraction of what U.S. workers do, and GM is not weighed down by additional health care and pension obligations. Although struggling in the United States, GM's Cadillac luxury brand is in high demand in China, where owning a Cadillac is considered a status symbol. GM's best-selling model in China, however, is the Wuling Sunshine, a small, boxy, purely functional micro van priced between $5,000 and $10,000 depending on what options the customer chooses. The SAIC-GM joint venture sold almost 2 million Wuling vehicles in China in 2014. The Wuling Sunshine may help GM further penetrate the Chinese market; it also may be an introductory car for other emerging markets. GM's low-cost strategy with this vehicle has been so successful that the firm is planning to expand the Wuling product line and offer the vehicle globally. GM already sells the Wuling Sunshine in Brazil under the Buick nameplate. Among GM's most profitable vehicles sold in China are such popular SUVs as the Baojun 560 and the Buick Envision (the latter of which is made in China and then imported to the United States, where it is also selling well). Since 2013, Buick's sales in China have risen by almost 50 percent; in 2016 alone, GM sold more than 1 million Buick vehicles. However, sales of Chevy, another GM brand, have fallen by some 16 percent. Despite being offered at a higher price point, GM sold twice as many Buicks as Chevrolets in China. Taken together, China and other emerging economies in Asia, Latin America, and the Middle East are becoming more and more critical to GM's future performance as it strives to become a lean and low-cost manufacturer of profitable small cars (at least for its non-U.S. markets). To back up its strategic intent, GM has quadrupled its engineering and design personnel in China and is investing $250 million to build a cutting-edge R&D center on its Shanghai campus, home of its international headquarters. Also, GM is spending an estimated $14 billion to build five additional manufacturing plants to support anticipated annual sales of 5 million vehicles. At the same time that GM is doubling down on China, it has exited Europe. In 2015, GM stopped manufacturing cars in Russia, citing unstable business conditions as the main reason. After years of losing page 511money and acrimonious parent-subsidiary relationship, GM sold its Opel (Germany) and Vauxhall (United Kingdom) divisions to Peugeot of France in 2017. In the same year, Barra also announced that the U.S. automaker will discontinue selling cars in India. This further retrenchment will allow GM to focus more on China and Brazil overseas, and to fend off tech startups such as Tesla and Uber in the United States, where it made an equity investment in Lyft, which in turn partnered with Waymo, Alphabet's self-driving car unit. For Mary Barra, unfortunately, not everything in China will be smooth sailing. Given the slowdown in the Chinese economy, combined with continual devaluation of the Chinese currency (the yuan) since 2014, the competitive intensity in the world's largest automobile market is becoming more intense. Moreover, several government-supported domestic car manufacturers in China are initiating a cutthroat price war to gain market share and, with it, scale. For instance, GM's own joint venture partner SAIC as well as other domestic companies such as Great Wall Motor Co. are increasingly competing with GM for market share. As the quality and technology expertise is rapidly increasing at domestic car manufacturers, many Chinese consumers are increasingly turning to local brands instead of the pricey foreign models from the United States and Europe. At the premium end of the Chinese market, brands such as Porsche or Audi (both are Volkswagen brands) remain the most popular choices. In contrast, low gas prices in the United States in recent years have fueled high demand for sport utility vehicles (SUVs) and trucksan area where GM and Ford hold strong positions. These types of vehicles are also the most profitable for the U.S. automakers to sell.