General Motors' CEO has outlined major investment plans to boost the company's presence in China as the automaker looks to resurrect itself globally.
IHS Automotive perspective | |
Significance | General Motors (GM) aims to raise sales to 5 million units in China, boosting market share and brand penetration across the segments. |
Implications | GM will use a host of strategies to counter growth of its arch rivals and limit the high growth rates seen by competition as it aims to achieve 9-10% margins on an EBIT-adjusted basis. |
Outlook | The fresh initiative to launch a host of new models across GM's brands together with expanding and creating new production capacity is part of the automakers plans to raise growth rates in China, its largest global market. |
At a time when growth rates across the light-vehicle industry in China are slowing, the CEO of US automaker General Motors (GM) has outlined strategic growth plans for the automaker in its largest global market. Mary Barra, CEO of GM, yesterday (1 October) outlined the company's plans to return to strong profitability by pursuing greater market share in China. Using China as a major market in its strategy to achieve strong growth across regions, the strategic plan includes various initiatives to bring about a 9-10% margin on an earnings before interest and taxation (EBIT)-adjusted basis by early next decade.
GM's plan includes raising production capacity in China, while expanding its product line-up in the market with significant focus on pushing Cadillac to gain a greater market share of the premium car segment in China and elsewhere.
The automaker will invest USD14 billion from 2014 through 2018 to open five new vehicle-manufacturing plants and support sales of just under 5 million vehicles annually, the automaker states in a press release sent directly to IHS Automotive. In the same time frame, GM expects to launch 60 new or refreshed vehicles, including nine new sport utility vehicles (SUVs).
Cadillac plans to introduce nine new models in the next five years in China, which is expected to become the world's largest luxury car market later this decade. This follows the recent development where GM has created a complete separate division for the Cadillac brand headquartered in New York to pursue growth opportunities in the luxury market with more focus and clarity (see United States: 24 September 2014: GM confirms Cadillac HQ will be in New York). The brand will also introduce four new vehicles in the North American market in 2015, including the recently announced CT6 (see United States: 25 September 2014: Cadillac plans to name range-topping CT6 sedan at launch next year).
Meanwhile, in China, the company expects that its joint ventures (JVs) will maintain net income margins in the 9-10% range. In North America, the company expects to achieve EBIT-adjusted margins of 10 % in 2016 and, in Europe, the company expects to return to profitability in 2016.
GM will also push auto finance with a continued effort to grow GM Financial, which has already grown from USD8.7 billion in 2010 to USD37 billion today. GM Financial will raise support in key markets and later this year will enter China.
Meanwhile, the automaker plans to lower costs per model by deriving more volume from fewer vehicle architectures. By 2020 the company expects that about 99% of global production will be on core architectures.
Outlook and implications
In 2014 GM and its joint ventures (JVs) in China aim for annual sales of over 3 million units (see China: 24 September 2014: GM expects sales of 3 mil. units this year in China), and the automaker now wants to push this to 5 million in coming years. As the largest single global market for GM, China leads the group's strategy for a major global turnaround. In 2013 GM and its JV partners in China sold over 3 million units (see China: 8 January 2014: Nissan sells 1.27 mil., GM sells 3.16 mil. in China for 2013), compared with 2.8 million in the United States (see United States: 6 January 2014: US light-vehicle sales up 7.5% in 2013, SAAR slips to 15.4 mil.)
GM is looking to significantly counter the strong market share seen by arch rival Volkswagen (VW) in China which has a strong foothold in the mainstay segments of the passenger vehicle (PV) market, and whose Audi brand has strong sales in the premium car segment in China. Meanwhile fellow North American automaker Ford has been seeing fast growth rates in China following its strategy of introducing a host of new models, new technology and new plants boosting its market share. GM, which in contrast has seen low growth rates, is swiftly bringing in an accelerated growth plan to boost its product line-up, production capacity, and brand penetration growth rates in China, its largest global market.
IHS Automotive Light Vehicle Sales Forecasts for China currently show that this year the automaker is expected to achieve annual sales of 1.63 million units of models sold under its Buick, Chevrolet, Cadillac, and Opel brands in China. (Please note IHS Automotive does not include the Wuling brand as a GM brand, although the automaker does include this brand when counting its annual sales.)* In 2015, this is forecast to grow to 1.7 million rising 5.35% year on year (y/y). In 2016, GM is forecast to rise 7.66%, but following this sales rates drop to 3.7% and lower. It is this that GM is now planning to counter. The growth rates forecast for the automaker is not what the automaker wants to see; Barra aims to change this, as part of her legacy to the automaker. "In the nine months that this leadership team has been together, we have spent a significant amount of time setting our goals for the future of GM and developing a specific action plan," Barra said. "Our strategic plan is a pathway to earn customers for life and create significant shareholder value in the process. Every chance to connect with a customer is an opportunity to build a stronger relationship."
Barra is also refocusing on new technology and has reiterated that much of the projected new volume is expected to come from the new models. In 2015, about 27 % of GM's global sales volume is expected to come from products new or refreshed within 18 months. That figure is expected to rise to 38 % in 2016 and 2017, and reach 47 % in 2019. During the same time frame, GM plans to execute the world's largest automotive deployment of 4G LTE high-speed mobile broadband, introduce vehicle-to-vehicle connectivity in the 2017 Cadillac CTS and launch a highly automated driving technology currently called Super Cruise, which allows for extended periods of hands-free driving on highways.
GM has also developed an innovative Mixed Material Body Structure that uses GM-patented welding technology and a combination of steel and aluminum stampings, castings and extrusions to deliver designs that are lightweight, use 20 % fewer parts, have class-leading torsional stiffness and exhibit superior noise and vibration characteristics, the automaker claims.
The big question will be whether the Chinese consumer will be enticed by GM's new ramp-up of products and how the competition will step up to the challenge.
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As part of its accelerated plan to introduce 15 new vehicles to China by 2015, Ford is introducing the Ford Escort and the Ford Mustang in early 2015, and the Ford Everest in mid-2015. To support its new-vehicle introduction plan, Ford will also open a new assembly plant in Chongqing towards the end of 2014 and another in Hangzhou later in 2015. The current growth rates witnessed by Ford on a year-to-date basis are double digits, with a 30% ytd growth rate in January-August, compared with the 11.1% GM and its joint ventures reported; the monthly marginally higher growth rate witnessed by GM continues to be based on the Wuling brand sales (see China: 5 September 2014: Ford reports sales up 9% in August, GM's up 14%). Meanwhile, Volkswagen (VW) group sold a total of 2.40 million units in January-August in China, marking an annual increase of 16.5% year-on-year (y/y) over the 2.06 million sold in the same period in 2013. In a company press release, the group states that in China the VW brand of passenger cars saw sales of 1.83 million units, up 17.1% y/y from the 1.56 million sold in the same eight-month period last year. Meanwhile, Audi saw sales in China of 364,100 units in January-August, up 16.4% y/y.
GM is looking hard at the competition, the rising South Korean brands, and the strong growth of Ford, and is planning to raise its market share by lifting products under its Buick, Chevrolet and Cadillac brands in China, giving them a refresh, adding new products and highlighting new technology.
Meanwhile, GM is working to grow volume globally, as well as deliver better margins on high-volume product launches, including the Opel/Vauxhall Corsa and Astra in Europe, and the Chevrolet Cruze and Malibu in North America. GM, its subsidiaries and JV entities sell vehicles under the Chevrolet, Cadillac, Baojun, Buick, GMC, Holden, Jiefang, Opel, Vauxhall, and Wuling brands. The 10 brands under GM and its JV partners will see stronger product line-ups across global markets as GM aims to strengthen market share globally.
*Wuling sales, which are under SAIC-GM-Wuling (SGMW), are forecast to be 1.57 million units in 2014, rising to 1.6 million units in 2016.