SHANGHAI - Outside, a storm is brewing. As currencies crash and economies across Asia are falling, China's auto market is slogging through a year of flat sales, well below the forecasts of only a few years ago.
But inside the walls of Shanghai General Motors' new $1.6 billion assembly plant in this bustling city, all is in high gear. In the press plant, which still had no roof as of Jan. 31, the shiny-new blanking and stamping presses are in the final tryout stages before the plant's Dec. 17 launch.
Indeed, the press lines are working so well that Shanghai GM canceled an order for 10 Buick Centurys from GM's Oshawa, Ontario, plant. Shanghai GM had planned to tear them down and use them to test the body shop's body-assembly precision. Made-in-China panels will be used instead.
Surveying his domain, General Manager Philip Murtaugh considers the outlook for Shanghai GM. His conclusion: 'You certainly wouldn't invest in China if you were looking at the next two years. But Asia will come back.'
That view drives GM's continued aggressive push into China. While the launch of a sister plant in Thailand has been delayed, the Shanghai GM plant is on or slightly ahead of schedule to build Buicks - plus, if government approvals come, a minivan.
To be sure, the U.S. carmaker's China operations have not escaped the Asian crisis entirely. If nothing else, slowing sales have made competition tougher. But, as GM China President Lawrence Zahner put it, 'There's growth for all of us in China.'
Consider GM's Delphi parts operation. With $400 million in 15 ventures set up in China over the past three years, Delphi has been one of the most aggressive foreign players in China's auto industry.
But now, Marcus Chao, Delphi's chief representative for China operations, said he is 'very afraid' that the date on the company's business plan for a return on its investment will have to be pushed back several years.
Chao said the current flat economy is leading Delphi to take a harder look at the costs and financial results of its ventures, which include joint ventures with Chinese partners and wholly owned subsidiaries.
Weak performers had better shape up - or else, he said.
'I don't think we'll close any (plants), but we're seriously looking at some,' Chao said.
At one plant, Delphi already has cut the work force through a combination of early retirements and layoffs. That was almost heresy in a nation where, for decades, higher production volumes and employment, not profits, were the chief measures of manufacturing enterprises.
Said Chao: 'Before, that was absolutely a no-no. Now, the Chinese side's view is, `Well....''
Rivals don't say directly that Delphi grew too fast. But Vaughn Koshkarian, until recently president of Ford Motor (China) Ltd., noted in a recent interview that the five China joint ventures of Ford's Visteon parts unit have about the same revenue as Delphi's 15.
Parts makers in China have had difficulties gaining crucial economies of scale because of regional protectionism whereby, say, the regional government in Tianjin leans on carmakers there to buy parts only from suppliers in the area.
So Delphi is trying to expand its volumes. At a parts showroom in its new Beijing office, labels on components testify to the broad range of Delphi's current customers. Among the wide range displayed there are wiring harnesses for the Shanghai Volkswagen Santana 2000, Ford Transit van and Beijing Jeep BJ2021; generators for the Citroen ZX; half-shafts for the Tianjin TJ2100, which is based on the Daihatsu Charade; and a sample instrument cluster for the U-van minivan, which will be known as the W-wagon if GM gets permission to build it in China.
Delphi continues to line up new customers. It sees opportunities as more makers in China add a second variation or an updated version to their existing lines. It also is bidding to supply parts to a new Honda Motor Co. plant in southern China and the planned GM plant in Thailand.
Back in Shanghai, Murtaugh had to pause and think when asked how the Asian crisis has affected his plant.
'It's made me more nervous, but it hasn't affected any of our planning,' he said.
Finally he came up with an example. Eight months ago, the plant's construction was two months behind schedule because of a shortage of construction workers. But that has not been a problem in the past three months as foreign-financed property speculation cooled and Shanghai's building spree slackened.
Today, construction is on or ahead of schedule. That is despite some minor hiccups unique to China.
For instance, utilities at the plant's Pudong industrial site are developed fully, but a pipeline carrying coal gas will switch to natural gas after a French-financed natural-gas facility is finished next year.
And some of the paint shop's tanks where car bodies are dipped before being spray painted had to be filled laboriously over several days from 50-gallon drums, instead of using
the tanker trucks Americans are used to, because of Chinese laws on the transport of chemicals.
Still, production of 'salable pilots' will begin in late January, with regular output starting in April, according to Dennis Dougherty, executive director of manufacturing.
As he walked through the plant, Dougherty repeatedly commented on two themes: the plant's reliance on lean-manufacturing techniques and its flexibility. For example, the presses were designed to handle either North American- or Opel-designed dies. So if the Thai plant's presses go down, Shanghai GM could take Thailand's dies and make body panels for them.
Also, Shanghai GM has space for the jigs for a second body style because the plant's business plan calls for being able to build a derivative model within a year of startup.
Equipment trials include the Buick Century sedan body panels that the plant will build and the panels for a minivan based on the same platform as the Century. A second press line already is going in and should be ready in a year.
Production in 1999 probably will be under 20,000 cars, and in 2000 probably under 50,000, Dougherty said.
Building cars is one thing, though, and selling them another. Shanghai GM never planned on selling any of its Buicks to individual buyers, choosing instead to focus on state-owned enterprises and government agencies. In effect, it planned to compete with legal and gray-market imports.
That segment, however, has been declining even as individual purchases, mostly of smaller models, have soared.
Murtaugh said Shanghai GM's business plans had been 'extremely conservative' in forecasting share of its narrow segment. 'Now, to maintain our volume, our penetration is going to have to increase. We're confident it can,' he said.
Shanghai GM already has hired a direct sales force to work with large fleets and has signed letters of intent with dealers and service providers as it compiles lists of potential customers. On the retail front, Murtaugh hints at a Saturn-like approach. The company sent all its senior marketing staff to Saturn Corp. for training.
GM also may benefit from a recent government crackdown on smuggling. Such crackdowns have come and gone in the past, but Beijing's concern that an outflow of cash could force a yuan devaluation makes the current anti-smuggling campaign more urgent and sustained.
'Gray markets in the last six weeks or so are down some 50 percent,' said GM China's Zahner. 'That will help manufacturers here, and will help Shanghai GM.'
On the other hand, new domestic entries will challenge the Buick model.
Honda is preparing to launch a China-built Accord, and Volkswagen's well-established dealer network will begin selling an Audi A6 built at a plant in northern China in the second half of 1999.
'Now we get new competition. That's a new challenge for us,' said Zhang Suixin, chief representative of VW's Beijing office, of Shanghai GM's Buick. 'The competition will not be decided in a few months or even a few years.'