SHANGHAI, China - To the accompaniment of cymbals and drums from a band on a flatbed truck, General Motors and Chinese officials last week turned the first spades of earth for an all-new plant here that will begin producing 100,000 Buicks a year late in 1998.
The launch of Shanghai General Motors, a partnership with Shanghai Automobile Industry Corp., and a nearby automotive-engineering center pushes GM's plans for China into overdrive.
Spread over a site larger than GM's Saturn complex in Spring Hill, Tenn., the $1.6 billion operation also will build about 100,000 V-6 engines a year, including some for export to the United States.
'We intend to be a major player in each of the major segments' in China, said GM International President Lou Hughes, speaking on the occasion of the biennial Shanghai auto show.
Indeed, according to another GM executive who declined to be identified, GM also is prepared to produce its new minivan family alongside the Buick at the Shanghai plant. That pos-sibility, which would require the approval of central government planners in Beijing, was first suggested by GM Chairman Jack Smith in an interview on May 29.
'We'd love to do that,' Smith said of the minivan, which shares the same underpinnings as the Buick.
But this year's Shanghai show comes as carmakers hoping to do business in China face a lackluster market, government ambivalence over the industry's future and increasing pressure from an emergent environmentalist lobby to improve the country's deteriorating air quality.
In response to those latter concerns, Honda Motor Co. showcased its EVPlus electric vehicle at Shanghai while Toyota Motor Corp. showed its prototype hybrid vehicle.
GM SHIFTS INTO HIGH GEAR
Nonetheless, China's vast potential, combined with a fear that those late to the market may find themselves shut out in the future, has convinced GM to proceed at flank speed here.
Although it is a relative latecomer to the market, GM is fast emerging as a potential rival to Volkswagen AG as China's biggest and most important foreign automaker.
In addition to the Shanghai plum, GM is in talks with potential partners and government officials to build light-duty trucks at its moribund Shenyang joint venture in northeastern China and Opel cars and engines in Guangzhou, near Hong Kong. Delphi Automotive Systems also operates several joint-venture plants in China and is seeking to add more.
GM WANTS FULL LINEUP
Ideally, Hughes said, GM's lineup in China would include: commercial trucks from an existing operation by affiliate Isuzu Motors Ltd.; a luxury sedan from Shanghai GM; a sport-utility, likely from Shenyang; and one or two Opel vehicles from Guang-zhou.
In Shenyang, GM hopes to recover from an initial flop.
Plans to build S10 pickups there in 1992 fell apart when it turned out that the Chinese market did not want two-door pickups. In addition, GM had a falling out with its then partner, Jinbei Automotive Co.
That coincided with a credit crackdown by the central government, which starved makers and consumers alike of capital.
First Auto Works, China's second-largest auto company after Shanghai Automotive, took over Jinbei in 1994. GM then entered talks on choosing a new model to build in Shenyang.
After more than two years of talks, 'we're close' to a deal, said Rudolph Schlais, vice president of GM and president of General Motors China.
'We'd expect in 1997 ... to be able to make a decision with our partners,' he said.
PEUGEOT WON'T LEAVE
GM also has been in intense talks for a year with the Guangzhou municipal government about building Opels there, according to Hughes. The cars would likely be the Astra and Vectra. But those talks are not as far along as negotiations over Shenyang.
One problem: Opel would be replacing France's Automobiles Peugeot as the foreign partner in the venture, and Peugeot is not ready to leave yet.
'We want our money back, and we're not going to leave until we get it,' said Christian Pietrement, the Beijing-based representative of Peugeot's parent, PSA Peugeot-Citroen SA.
Production at Guangzhou-Peugeot halted last year after bickering between the partners and poor sales.
Schlais said the usual pattern of negotiations in China is for each side to lay out what they want to achieve in a venture. Then, if the desires are compatible, the foreign company submits a proposal that becomes the basis of bargaining. GM has submitted a proposal for building cars in Guangzhou, but the talks have not yet progressed to the next stage: seeking government approval for a feasibility study.
'We'd very much like to build Opels in China,' Hughes said. 'You just keep trying to find a way. This looks like a very reasonable way.'
GM'S ENGINE PLAN
Separately, GM has submitted a proposal to the Guangzhou municipal government to build Opel 4-cylinder engines there.
That venture would complement the 3.0-liter V-6 engines to be built at Shanghai GM.
The Shanghai engine plant will do its own machining of crankshafts, camshafts, connecting rods, cylinder blocks and cylinder heads.
Beginning in the second year of the plant's operations, engine castings will be bought locally as well.
Some of the V-6s will be shipped to North America to meet Chinese government requirements that the venture export part of its output, according to Hughes. They will be used as replacement engines by GM's service operations there.
In China, the engines will go into Buicks that will be sold as executive cars. Based on the 1997 Regal, the car's interior will be revised to make it more appealing as a chauffeur-driven car.
In the rear passenger area, GM will add separate heating, air conditioning and radio controls, as well as extra ashtrays and cigarette lighters.
Moreover, GM will reconfigure the 3.0-liter engine so that its displacement is actually 2.99 liters. That will lower the tax rate on the engine and put it within the allowable size for use by slightly lower-ranking party cadres in the Chinese Communist Party.
GM won the opportunity to build sedans in Shanghai after a lengthy contest in which it beat out Ford Motor Co.
Staff Reporter Kathy Jackson in Detroit contributed to this report.