Who is going to buy a $40,000 car in China on those wages ? Why isn't the United Auto Workers union screaming about this ? Could this have anything to do with the secret tunnel which is being built between Alaska and the Russia which just happens to be connecting with China ? Mark http://www.freep.com/business/qchina17.htm -------------------- [The freep][business] [Autos] [Image] [Search] The Shanghai Buick debuts amid doubts Analysts see little hope for profit soon December 17, 1998 BY MICHAEL ZIELENZIGER AND JENNIFER LIN Free Press Foreign Correspondents SHANGHAI, China -- Today, a white Buick Regal will roll off a new General Motors Corp. assembly line that just 22 months ago was a farm field. The $1.5-billion General Motors plant in Shanghai is the largest foreign investment ever made in China. It is a sprawling, 2.4-million-square-foot, state-of-the-art assembly line that employs an estimated 1,700 workers at about $1.40 an hour. When full production begins in April, about 40 percent of the Buicks manufactured in China will consist of locally produced parts, as part of a joint venture between GM and the Shanghai Automotive Industry Corp., a government-owned enterprise. The Buick will carry a price tag of about $40,000 in China -- about 100 times the annual wages of an average Chinese worker. But building cars isn't the same as selling them, and legions of skeptics believe it will be years before GM ever sees a significant profit from its investment. "It's a miserable time to be opening a car plant," said one former executive involved in GM's operation in Shanghai who requested anonymity. "The auto market in China is really hurting right now, and there is really no sign of improvement. GM has to be looking 10 years out to imagine they will make any money." The economic crisis that stormed across Southeast Asia this year has begun buffeting the Chinese economy, which remains under tight government control. Government ministries have cut spending, reduced new investments in joint venture projects, and delayed efforts to privatize failing government-owned industries. The government also has issued orders to curtail car purchases. But government-owned businesses and joint ventures, along with government agencies, are the main buyers of luxury cars. Experts say only one in 10 passenger cars in China is purchased by individuals. Philip Murtagh, general manager of GM's Shanghai factory, said he is confident that GM can meet its conservative sales plan after the factory finishes its test run and begins full production of cars next April. "We have nearly 5,000 firm orders for the vehicle right now," he said. "We think we're going to compete very favorably" with Mercedes-Benz and other luxury imported vehicles as a Chinese-made car. Outside analysts are not so sure. "The customer base GM is trying to serve is shrinking," said Len Shapiro, director of China operations for Automotive Resources Asia, a market analysis firm. "It was a great idea when GM started planning this factory in 1995, but in 1999 it's not going to work." Even before the Asian crisis started in mid-1997, international car makers were expressing doubts about the prospects for profits in China. Foreign manufacturers often are confronted with an ever-changing array of government regulations and find it difficult to distribute or service their vehicles. These functions usually are completely controlled by the Chinese partner. GM officials say they are willing to pay the price to be a player in what someday will be one of the world's biggest car markets. According to Automotive Resources Asia, the vehicle market in China is expected to grow only about 1 percent next year, to a total of 1.3 million vehicles. Murtagh believes Chinese consumers will welcome the Buick with its advanced 2.98-liter engine, since the Volkswagen and Jeep models now popular here employ technology that is three to five years old. The new cars offer a tighter suspension to handle China's sometimes pothole-laden roads, and a spacious rear seating area, since that is where the primary customer sits as he or she is chauffeured around town. One Chinese businessman said he's sure the Buick will sell briskly at first because of its novelty and the support of the Shanghai government, which is committed to purchasing nearly 2,000 of the new cars. "My driver has said he wants to drive it," he said. "The government and the city of Shanghai want to make sure they have a success in the beginning, so I'm sure the first cars will sell," he said. "After that, it will depend on the experience people have with the car." Murtagh noted that around 40,000 to 50,000 cars per year are being sold in the upper-market segment, according to official statistics. "But if you look at high-end vehicles exported into China, that's more like 150,000 vehicles" including illegally imported gray market vehicles. The luxury-vehicle market is growing in China, he said, even as the economy slows. But many others wonder whether Chinese businesses and private citizens will buy luxury cars if the economy is slowing. Experts say light trucks are the fastest-growing segment of vehicle sales. GM must hope that the Chinese government remains a big purchaser of luxury sedans, and that police continue to crack down on the smuggling of Mercedes, BMW, Lexus and other luxury vehicles into China from Hong Kong to escape huge import duties. GM already has paid a high price just to get into the Chinese market, whose prospects seem far less attractive now than they did in 1995 when it beat out Ford Motor Co. and Toyota Motors to get the last automobile manufacturing license the Chinese were going to issue. GM apparently cinched the deal when it agreed to manufacture engines and automatic transmissions in the Shanghai plant, create a research-and-development technical center, and build an extensive parts manufacturing network throughout the Shanghai region. GM also has promised by the year 2000 to increase to 60 percent the portion of the Buick Regal actually built in China. Today GM and its affiliated companies, such as Packard Shanghai Electric and Saginaw Xiaoshan Steering, employ 8,000 people in 16 joint ventures, representing a $2 billion investment. And Murtagh says the Shanghai area now boasts the nation's most advanced network of automotive know-how -- thanks to the new Buick Regal plant. MORE BUSINESS STORIES [Image] [navigation bar] All content © copyright 1998 Detroit Free Press and may not be republished without permission.
