GM to spend $250m on car design in China
(Agencies)
Updated: 2004-06-23 13:39

(Continued)

It joins multinationals such as France's Alcatel SA that have declared China's financial hub their regional base.

GM would maintain a sales and service center in Singapore, but had offered to relocate 90 jobs.

Car sales in China nearly doubled in 2003 after breaking the million mark for the first time in 2002.

But sales are slowing as Beijing curbs easy lending to cool overheated parts of the economy. Sales slid 19.4 percent in May from April, the second straight monthly decline.

Wagoner brushed off concerns over the slowing market.

"The base is getting bigger," he said. "Compared to most other places in the world, this is a pretty good issue to be dealing with."

Yet analysts warn of a glut that will sap profit margins and fuel a vicious price war as demand slows.

GM cut prices in May on two of its core products -- the Buick Regal and the GL8 executive wagon -- by as much as 11 percent, followed a month later by almost identical cuts by Volkswagen.

GROWTH 'IMPOSSIBLE TO SUSTAIN'

"It's impossible to sustain that kind of growth as the base gets bigger," Michael Dunne, president of consultancy Automotive Resources Asia, said on Tuesday.

But Dunne, who thinks car sales in 2004 will grow by 10 to 20 percent on 2003, remained upbeat for the longer term.

"If you look around the world in terms of profitability, growth in China is head and shoulders above everybody else," he said. "So slowing, yes, but still highly attractive."

The Detroit giant sold about 70 percent more cars in China in the first quarter than a year ago, compared with a rise of just over five percent in the United States.

GM is also pinning hopes on auto financing in China, a nascent market that accounts for some 20 percent of car sales compared to about 90 percent in developed countries. It is awaiting a business license.

Globally, the company derives over 60 percent of its net earnings from financing.

"We're not too hung up on the specific conditions of the market today," said Wagoner, who joined GM in 1977. "Over time we know it's a good business to be in."

GM's profits from its China ventures nearly quadrupled to $162 million in the first quarter of 2004. If sales growth and margins continued at those rates, China would produce about a quarter of the group's $4 billion in profits forecast by analysts for this year.

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