General Motors' Aggressive $12 Billion Investment Plan To Regain Position As Market Leader In China
General Motors ( GM ), along with its joint venture partners, offers a wide range of vehicles and brands in China. GM's offerings in China are comprised of the cars sold under Baojun, Buick, Cadillac, Chevrolet, Jiefang, Opel and Wuling brands. In 2013, GM sold nearly 3.2 million vehicles in China, representing a sales growth of 11.2% from 2012. The U.S. based automaker derives close to a third of its sales from China. Despite the solid performance in 2013, GM was overtaken by German car company Volkswagen as the market leader in new car sales in the country. Capitalizing on the growing preference for luxury cars in China, Volkswagen sold nearly 3.3 million cars in 2013, to grow its market share from 14.6% in 2012 to 14.9%. Meanwhile, GM's share declined from 14.7% to 14.4%. The loss of market share can be attributed to GM's inability to identify market shifts such as the surging sales of SUV's, crossovers and the booming luxury car market.
In October last year, when GM's position as market leader was merely under threat from Volkswagen, the company gave out details of a plan to invest $11 billion in China by 2016. Now, GM has announced plans of investing $12 billion in the country from 2014 to 2017 and build more plants as it fights to regain the market leader position. The company plans to have five more plants in China in 2015, with the target of increasing its manufacturing capacity by 65% through 2020. At that capacity, the automaker will be able to support a demand for 8 million vehicles per year.
We have a $40 price estimate for General Motors , which is about 12% more than the current market price.
China Auto Market Growth To Come From Luxury, SUV
GM aggressive push comes at a time when the world's largest automarket is showing signs of cooling. IHS predicts the growth rate for light vehicles will decline below 10% in the coming years and slow down to 2.5% by 2020. GM's own estimates pace the Chinese vehicle market to reach 33 million to 35 million by 2020, nearly double the expected capacity of the U.S. vehicle market by that time, from 22 million in 2013. Most of this growth is expected to come from the utility vehicles and luxury vehicles segments. According to McKinsey, the luxury vehicle market in China is expected to grow at a CAGR of 12% till 2020, outpacing the 8% annual anticipated growth in the country's overall passenger vehicle market. This also means that the country will surpass the U.S. as early as 2016 in luxury vehicle sales, and surpass the 3 million annual sales mark by 2020.
GM Targets SUV's, Crossovers and Luxury Segments
GM's planned 65% expansion will put GM's capacity close to 8 million vehicles a year. According to Yale Zhang, managing director of Automotive Foresight in Shanghai, total domestic passenger vehicle capacity in China is expected to expand to 21.7 million from last year's 17.6 million by 2018. This would make GM's 5 million capacity by 2015, the largest vehicle manufacturing footprint in the region. The company plans to introduce 60 new or refreshed vehicles between 2014 and 2018, with special focus on expanding GM's range of utility vehicles and luxury cars, including the Cadillac lineup. The company plans to launch 11 new SUV's in China over the next 5 years. Of those 5, two will arrive in 2014: the Chevrolet Trax compact crossover and a mid-sized vehicle from Buick.
GM estimates SUV sales to account for 7 million units in China by 2020, more than thrice the current size of the segment. Similar growth is expected in luxury sales, which are expected to comprise nearly 10% of the market by 2020. To this end, GM responded by starting the production of its full-sized sedan, Cadillac XTS, in Shanghai in 2013. The company plans to keep adding one new locally produced Cadillac brand to its portfolio through 2016. The automaker sold 30,000 Cadillacs in China in 2012. The company expects annual sales of the brand to reach 100,000 by 2015 and capture 10% of the luxury market by 2020.