|Wuling's annual vehicle sales|
|Source: Automotive Resources Asia Ltd.|
Dormitories for the assembly plant's 6,500 workers are empty; the employees live at home now. Outside, piles of coal are left unused, a relic from the days when the company produced energy to heat and light the minivan plant.
Step into one of those buildings, though, and it is a different world. A modern assembly line has replaced the outdated machinery of the state-owned company in Liuzhou, China.
Red floor lines mark where carts filled with components should sit. Charts show material use, defect rates and output. The layout is modeled after General Motors' new assembly plant in Shanghai. A delegation from Wuling visited the GM plant last year.
Liuzhou Wuling has come a long way since its early days, when it manufactured tractors.
But Wuling General Manager Shen Yang realizes his company is not ready to compete with foreign rivals when China enters the World Trade Organization. "Our volume isn't big enough," he admits. "We can't make it in the global market."
Seeking helpThe Chinese automaker does not have the money or engineering expertise to design modern vehicles. So the company looked outside China for help and found General Motors.
In July, Shanghai Automotive Industry Corp. took a controlling 75.9 percent holding in Wuling to create SAIC Wuling Motors Co.
Now, Shanghai's joint-venture partner, GM, must negotiate its stake in Wuling. Eventually the partners plan to create a three-way ownership split among Wuling, SAIC and General Motors.
For Wuling, the deal's benefits are obvious: The company gains access to GM's money, engineering and purchasing power. And that spells survival. Meanwhile, GM and Shanghai Automotive will gain a foothold in China's basic transportation sector.
"It will get us into a market where neither of us had a presence," says Philip Murtaugh, chairman of GM China. "It gets us into a market that will become a boom market. That's a win-win deal, which is what we like to do."
This entry-level market - often confusingly referred to as minicars - is China's largest and fastest-growing market segment. This segment is expected to generate sales of 600,000 units this year, with an annual growth rate of 28 percent.
Low pricesThese vehicles retail at $3,800 to $5,400 - prices GM can't match. Profit margins on a $4,000 automobile are small, but Wuling, which expects to sell 130,000 units this year, is profitable. GM is following a similar strategy in Russia, where it formed a joint venture with AvtoVAZ to produce cheap sport-utilities.
The Wuling venture will add an entry-level vehicle to GM's lineup of mid-market and upscale cars in China. In Shanghai, the automaker's joint venture produces the Buick Sail - a variant of the Opel Corsa - plus an upscale minivan and sedan.
The joint venture also is considering a sedan with a price range of $18,000 to $30,000.
Liuzhou Wuling started making minivans in 1982 and phased out tractors in the early 1990s. By that time, China's agricultural policy - which allowed smaller private farm plots - had all but destroyed demand for tractors.
As China's economy expanded, Wuling found customers for its six- and 12-seat vans.
In 1998, the former state-owned enterprise became a share-holding company. That same year, the automaker began exploratory talks with Shanghai GM.
Negotiations accelerated this year when the Chinese government told the auto industry it should form three or four strong groups to compete with foreign rivals. For Wuling - China's seventh-largest vehicle manufacturer - that was a call to action.
Wuling's minivan is based on a 15-year-old Mitsubishi product, and it does not have the resources to develop a replacement. The automaker has "no capability to develop new products or respond to life in the real auto world," Murtaugh says. For example, the company does not have the expertise to meet China's new safety and emissions regulations.
Tougher regulationsMurtaugh is one of many who think Chinese regulators will make a serious effort to enforce these regulations. "I am going on a basis that China is going to enforce its laws," he says. "It's like night and day compared with five years ago in terms of enforcement. They are not perfect, but they sure are working hard on it."
Now, Wuling will get the technical support it needs to assure its future. Its Liuzhou plant is not as primitive as might be suggested by the cheap, low-tech vehicles it produces. The company's manufacturing complex includes a stamping plant, an engine plant, a body shop and a paint shop. Most suppliers are within 30 miles.
General Motors has offered some short-term assistance to help Wuling meet regulations. But Wuling must replace the outmoded Mitsubishi platform used for the half-ton pickup, a seven-passenger minibus and a postal van. Enter GM's partner, Suzuki Motor Corp. The Japanese automaker is likely to offer a platform to Wuling, although the partners have not decided on a product.
Murtaugh declines to reveal GM's investment but admits, "It's not big money." Most likely, that means GM is investing less than one-tenth as much as its $1.5 billion commitment to its Shanghai joint venture.
The venture is aimed at the Chinese market, but Wuling does export a few vehicles to other developing nations. It also exports 2,000 to 3,000 vehicles a year to U.S. golf courses, which use them as maintenance trucks.
In the next decade, Shanghai Automotive Industry Corp. wants to help Wuling boost production to 300,000 units per year, twice its current capacity. And GM sees export potential for the vehicles, Murtaugh says. Asia's 3 billion people have roughly the same economic status, he says. "They need basic transportation."