Phil Murtaugh has a reputation as a good golfer. But when a journalist tempts him with the offer of a round of golf on the lush green hills of Chiangmai, Thailand, the chairman of GM China Group declines.
All he wants to talk about now is cars and the market. At the top of Murtaugh's mind is General Motors' introduction of the Buick Sail this month in Shanghai. The Sail, a 1.6-liter compact car, is the result of a joint development project between Opel and General Motors do Brasil. The Sail is based on the Brazilian Corsa with engineering modifications by PATAC, General Motors' joint venture design and development center in Shanghai.
GM expects the Sail to take a significant share of China's small-car market. The Sail presents the company with a key opportunity to transform a $1.5 billion investment into a profitable operation. To do so, GM must win the next generation of Chinese car buyers - young professionals with money. Think of them, Murtaugh says, as 'the Chinese version of yuppies.'
Research experts say chuppies - young, prosperous Chinese professionals - are in their late 20s and early 30s. They buy clothes at Esprit. They splurge on Haagen-Dazs ice cream. They carry degrees from Beijing University or one of China's other prestigious schools.
They have money, too. On average, a chuppy earns $2,000 a month. That's paltry by European or American standards. But in China, where housing often is government subsidized, a dollar carries significant purchasing power. Stingy about daily expenses, chuppies save up to half of their income. They are not saving it for retirement, like their parents taught them. Instead, they are saving to buy the more prestigious consumer products: A Mont Blanc pen; a briefcase from Coach.
For this emerging class of consumers, quality is number one. Image comes a close second. When it comes to car buying, chuppies are disappointed by the handful of aging car models available today in China. If you want an entry-level car, there is the 1980s-vintage Volkswagen Santana or easily forgettable challengers from Citroen, Daihatsu and Suzuki. 'Consumers are forced in today's market,' says Murtaugh, 'to buy products that don't meet their expectations.' He thinks there is a market waiting to be tapped.
Where are these consumers and how many cars will they buy? In big cities such as Shanghai and Beijing, you'll discover them not in waves but in tiny pockets. They are an incidental scattering of moderate wealth among China's sea of poor. When these pockets are added up nationwide, they indicate demand for more than 100,000 compact cars a year.
One such consumer is Rainbow Wang. A 28-year-old former consultant at the PricewaterhouseCoopers accounting firm, Wang now is a senior researcher at Blue Print, an Internet consulting company. Wearing a stylish back dress suit, she has a presentation to deliver in 20 minutes. But Wang still has enough time to give her opinion. The Shanghai native wraps both hands around her latte from Starbucks and begins to talk about cars. 'I've been thinking about getting one for a while,' she said. 'I put it off because there's an unreasonable ratio between price and quality. I'd rather wait.'
Wang says she will buy in the next 18 months. For now she's undecided. She likes Volkswagen's reputation for quality. She also is intrigued by pictures she has seen of the Toyota Platz, due in 2001.
GM aims to intercept Wang and her kind when it introduces the Buick Sail this month. To capture new buyers, the Sail will come with an unusually strong lineup of standard equipment, starting with safety features. Every Buick Sail will have standard driver and passenger airbags, four-wheel antilock brakes, safety cage body construction and energy-absorbing front and rear crush zones.
But a safe, small car may only draw a shrug from the chuppie crowd. They want a car that projects an image of success. To put extra zing into the product's image, GM will badge the Corsa-based compact car Buick instead of Opel. 'They'll be getting a Buick in a smaller package,' Murtaugh said. Buyers also will be getting a splash of new, dynamic colors to choose from, including silver leaf metallic, jasper green metallic and crimson.
The Sail will meet Euro II emissions standards and will include an optional automatic transmission. These features place the Sail several steps ahead of older rival models in terms of technology and image for the money. Most remarkable of all: Buick is expected to price the basic Sail starting at 100,000 reminbi, or $12,000. Given the special nature of the target market, it is natural to expect an upscale version of the Sail to come to market at a price closer to $20,000.
GM believes the Sail's target market is a sophisticated group of buyers who know products and technology. As many as half a million people have the incomes to buy this kind of car in China. But many of them frown at current offerings and elect instead to put their money toward property investments or set it aside for their child's education.
The target market core consists of professionals who use the Internet routinely, so GM will offer Chinese consumers GM BuyPower, an Internet configurator that allows customers to order, purchase and pay for their cars via the Internet.
Despite GM's Internet program, traditional marketing channels will account for most sales. By year end, GM will have 60 independent retailers nationwide. All will be part of GM's lean pull system, in which cars are built and sold on demand. With its retail network in place, GM does not expect to be hampered by protectionist policies in other provinces - at least not until other cities start to produce their own small cars.
How many Sails will Chinese consumers buy? With full production starting in April, GM plans sales of 30,000 to 40,000 units for the year. The Sail will come from the same plant that produces the Buick Century and the GL-8 minivan, which has a capacity of 100,000 units per year.
The Sail seems destined to win a share of the highly prized small-car market. But two threats loom. First, competition will be intense. Toyota, Volkswagen, Honda, Fiat and Ford will introduce competitive models over the next two years. Once that happens, chuppies will begin to make their choices based on product quality, image and service. Honda and Toyota excel at service for Chinese customers.
Second, a boom in the small-car market depends on the availability of consumer loans. Private buyers finance less than 10 percent of their car purchases. Car loans are limited by inadequate financial information and weak legal recourse in the event of default. 'Financing is the trigger that needs to be pulled in order for this market to boom,' says Murtaugh. In partnership with a Chinese bank, GMAC will offer car loans as soon as China joins the World Trade Organization. That is expected early next year.
If car loans remain rare, growth of the small-car segment will be good but not sensational. Automakers will find themselves in a price war. But that is in the future. This month, the Buick Sail has the enviable advantage of being the first of a new generation of smartly designed small cars on the market. But it will not be easy for GM to maintain its head start. 'We are first in the market,' says Murtaugh, 'but we won't be alone for long.'
You can e-mail writer Michael J. Dunne at [email protected]