GM Buys Market Share With Cost Cuts in China
For the first time, sales of General Motors' automobiles
in China have overtaken those of Volkswagen. In the first
six months of 2004, GM sold 259,653 vehicles, going up
by 57.6% over the same period last year.
This is the first time that GM has sold more vehicles
in China than the leader, Volkswagen. Volkswagen has had
a presence in China for more than 20 years.
Sales were helped because GM slashed prices by 11% on
its two base models in China. In the US, GM has also been
particularly aggressive in slashing interest on payment
options for its automobiles.
While Americans are great believers in cutting prices
to capture market share, and driving their competitors
out of the market, the strategy often comes at a price.
Brands which slash their prices in order to capture market
share lose the premium part of the market, and capture
the mass market, where price is the determining factor.
GM says that it will continue to introduce a wide variety
of models to appeal to different areas of the Chinese
market.
While auto financing is new in China, having started
in 2003, the government has kept a careful eye on it,
and has cut back on it to cool down the Chinese economy.
In the US, GMAC, GM's financing arm, is more profitable
than the manufacturing part of the business.
Already, there are early signs suggesting that the price-cutting
is affecting the image
of automobiles, at least in China's major cities.
To add to the challenge, China now has more than 28 auto
makers, compared to three in the US. So far, the Chinese
government has been unable to get many of the companies,
which mostly have provincial government backing, to consolidate.
The Chinese government has also voiced early worries
about the rampant growth of the auto market, which has
spurred high growth demand for oil imports. The search
for new and secure oil sources has now become a major
component of Chinese foreign policy.
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