Exclusive: GM bet on electric Cadillacs and micro vans to return China’s slide

SHANGHAI (Reuters) – General Motors (GM.N) renews its Chinese line-up with a greater emphasis on electric cars and smart-drive technology to put a slump in sales after more than two decades of growth in a country that contributes nearly a fifth of its profits.

GM’s new China boss Julian Blissett told Reuters it would renew its focus on luxury Cadillacs, expand larger but greener sports-themed cars (SUVs) and entry-level entry-level micro-electric cars (EVs).

He said new technologies such as EVs and cars with almost hands-free driving for highways will play a key role in GM’s China initiatives, which are part of a drive to regain momentum lost in the face of intense competition and shifting taste.

Blissett, who this year replaced China veteran Matt Tsien, spoke to Reuters ahead of GM’s Tech Day event in Shanghai later on Wednesday, where he and Chief Executive Mary Barra are expected to announce some of the new plans for technology and product development.

“This market is electrifying fast. Cadillac is on its way to very heavy electrification. Buick will also electrify strongly, “Blissett said, adding that GM’s Chinese brands Baojun and Wuling would also cut the electrical route.

“The market is changing dramatically. So the concept of standing still in China does not work. ”

GM sells its Chevrolets, Buicks and Cadillacs in China, as well as its local brands Wuling and Baojun and has been one of the foreign success stories in the world’s largest car brand together with the German Volkswagen (VOWG_p.DE).

But GM sales outlets have taken a hit, falling to 3.1 million cars in 2019 from a record 4 million in 2017.

A slowdown in China’s economy and the resulting weakness in its car market have been a major factor behind GM’s loss of sales, but analysts say competition has also intensified.

Toyota (7203.T), Volkswagen and Honda (7267.T) have done food in GM’s business while Chinese motorists like Geely (0175.HK) and Great Wall (601633.SS) create better quality cars that can compete more effectively with the global giants.

GM also opposes competition from Tesla (TSLA.O) while Lynk & Co and Polestar, brands affiliated with Volvo, have sleek sleek designs that Chinese consumers crave.

Back to 4 million

In 2017, GM China accounted for 14.3% of total sales of 28.2 million cars. By 2019, that was down to a 12.2% share of 25.4 million cars.

Blissett said the main goal of their strategy was to get back on sales of 4 million cars a year as soon as possible.

“Our company is a high technical cost, companies with high capital costs, so without scale it is quite difficult to earn money. We have to get back to that, “he told Reuters.

He said he could not give an exact time frame for when GM would reach its target due to the uncertainty about how fast economies around the world are recovering from the coronavirus fallon.

Some GM officials have privately admitted that their brands, particularly Chevrolet, have been slow to introduce more SUVs in China as they have become increasingly popular.

However, both Buick and Chevrolet now have four SUVs each and Cadillac has three, Blissett said.

Analysts have also said that the promotion of their top-end Cadillac brand came at the expense of Buick and Chevy sales, and that it failed to match rivals with its sleek designs.

Blissett said GM would sell larger SUVs, many electric, for its Chevy, Buick and Cadillac brands, although traditional gasoline-powered SUVs still offer GM “enormous opportunities” to increase sales in China.

GM also wants to transform Wuling into a market that is more focused on micro, electric “people-mover” wagons, he said.

ELECTRIC REVOLUTION

“Over the next five years, more than 50% of our capital and technical commitment will go to electrification and autonomous propulsion technology. That should give you an indication of where GM is betting on its future, ”said Blissett of GM.

“Chinese consumers are very embracing technology, saying that technology on the phone, or that is e-commerce, or that intelligent driving technology, or electrification. “Although Europe and the US have quite important plans for a government and market point of view, the electrification of cars here will happen much faster in China,” he said.

“We aim to be equal in the heart of this market. That, we will play hard in the EV space. And that is why we invest as we are. ”

GM’s Wuling and Baojun markets have been experiencing declining sales over the past two years as lower-income consumers bought fewer cars in the face of slower growth and intensified entry-level competition from Chinese rivals.

There are signs of life at Wuling, however, with sales up 9.7% in the second quarter of 2020.

GM hopes to launch its new Wuling MINI EV this year, a micro two-door car, and a series of similar cars in the pipeline, it will help win part back. Prior to EV subsidies, the MINI EV could cost as little as $ 28,800 ($ 4,150) for a base model.

‘WINNERS AND LOSERS’

To be sure, GM has made blunders, such as equipping some compact cars with unpopular three-cylinder engines. That significantly boosted GM sales and it had to reboot a four-cylinder petrol engine for a few models.

However, analysts said much of the body blow that GMs brands took in China came from local markets that significantly improved the quality of their cars and as Japanese and German rivals boosted sales despite a weaker overall market.

Beijing’s emphasis on greener cars has also significantly increased the costs associated with designing and producing cars, which have combined to create a boom in China’s auto industry.

Already, small Chinese brands like Lifan have gone out of business, while French carmaker PSA (PEUP.PA) has significantly scaled its operations and Renault (RENA.PA), which is in a global alliance with Nissan (7201.T), picked up a lofts.

“There’s been a revolution happening in the sector,” Blissett said. “There are also winners and losers in the world markets. The trend is actually for the local markets to lose share if you look at the overall trend. Luxury is a gain in share. ”

Analysts expect that consolidation in the automotive sector will continue unabated in the coming years, with more failures, as well as more mergers and acquisitions.

China auto industry expert Michael Dunne said that if GM failed to properly manage its number of brands in China, one might become a victim.

“The introduction of Cadillac has resulted in Buick hitting a notch in the eyes of Chinese consumers,” he said. “Buick is leaning more towards where Chevy plays, and as a result, the two brands are crawling together and are now hitting weaker punches.”