Maybe people will pay more attention to Wuling’s role in General Motors China sales now

This week I feel like writing about a non-EV related issue. Partly because I don’t have any good ideas for an EV-related blog. But also, I read some news that hit on something I’ve been keeping my eye on for a long time.

Kevin Wale, president of GM’s China group, www.gmchina.com said a few days ago that GM’s sales in China would likely grow by only about 10% this year compared to 2010.  http://www.autonews.com/apps/pbcs.dll/article?AID=/20110711/GLOBAL03/307119827/1131

Granted, 10% is not to be sneezed at.  But in China, that would have been considered a poor showing even last year.  It’s the bottom of the growth range Wale forecast earlier this year.  His bearish tone brings to the fore how dependent GM’s China sales numbers are on its minivan joint venture, Shanghai GM Wuling. www.sgmw.com.cn   Many in the media seemed to have ignored that for a long time.

To GM’s credit, it didn’t try to hide the problem. Indeed, to my surprise, it talked about Wuling’s falling sales—down 5.4% in the first half of 2011– in the second paragraph of its press release of July 5, after the “Unprecedented First Half Sales” subhead. http://media.gm.com/content/media/cn/en/news.detail.brand_GM.html/content/Pages/news/cn/en/2011/Jul/0705

I guess that is because, though Wuling accounted for 50.4% of GM’s China sales, it sold a goodly number of Buicks and Chevys in the first
six months, as well.  Buick sales, for example, grew by 28.2% on-year in the first half of 2011 to 324,919 vehicles, according to GM.

Nonetheless, the recent news will hopefully encourage those who read GM’s glowing sales figures out of China to disaggregate them a bit in the future.

Sales don’t tell much about the profit picture for GM in China. GM owns 44% of Wuling; it owns 49% of Shanghai GM, its flagship joint venture. So it gets only part of the proceeds. And, Wuling’s best selling model, the Sunshine mini van, costs around US$5,000.  http://www.sgmw.com.cn/templates/chanpin_wlcy/index.aspx?nodeid=55

Why did Wuling’s sales fall? The main customers for its mini vans are small private businesses. They are getting hit hard by China’s raging inflation. Prices were up 6.4% in June. Also, loans have gotten more expensive—China’s central bank has raised interest rates five times since October trying to tame inflation.

And, some government policies that were boosting sales in the small towns and rural areas where Wuling’s customers live ended, such as a “cash
for clunkers” type trade in program.  And, the government banned the use of mini vans for tour or school buses, according to J.D. Power and Associates. Indeed, J.D. Power www.jdpa.com forecasts sales in the light commercial vehicle segment, which includes Wuling’s main products, will fall by 2% for all of 2011 compared to 2010.  So GM’s sales numbers will likely continue to take a hit on the Wuling side.

Nonetheless, General Motors made a brilliant move when itbought 34% of state-owned Wuling in 2002.  (I feel a personal connection to Wuling as I was the first foreign journalist to visit the automaker. Back in 2001, when I worked for BusinessWeek in Shanghai, I interviewed Wuling general manager Shen Yang in Liuzhou, where Wuling is headquartered. The General Motors purchase of Wuling’s shares was still pending and hasn’t been officially announced. )

Wuling’s sales roared as incomes rose after China’s WTO entry. The economy grew by double-digits.  GM managed to buy more of Wuling in November of 2010, and now owns 44%.  According to my sources, GM wrangled that deal by giving Wuling access to some older platforms so Wuling could launch its own line of passenger cars, called Baojun or “Treasure Steed.”  The first Baojun model—a small sedan– rolled off the line in November, 2010.

But Wuling–and GM–is still dependent on minivan sales to make the numbers. And farmers and small businessmen worried about inflation aren’t buying.  So GM China isn’t invincible.