SHANGHAI-- General Motors China signed a memorandum of understanding Feb. 26 to restructure its SUV joint venture in northern China in a bid to make it profitable.
"We are very, very confident this deal will allow us to stop talking about the problems at Jinbei GM Automotive Co., and we will be able to turn Jinbei GM into a profitable operation and fully utilize its capacity," Phil Murtaugh, CEO of GM's China operations, told Automotive News.
Jinbei GM began producing Chevrolet Blazers in 2001. Today, it makes seven Blazer configurations. It sold 3,289 units in 2003. The company has never been profitable.
Formed as a stand-alone company, Jinbei was responsible for its own sales, marketing and distribution. But with a production capacity of only 50,000 units, "it was very, very difficult to support a strong distribution network or add new products," Murtaugh said.
Under the new ownership structure, the plant becomes another manufacturing site for GM's China operations, he said. Marketing, sales and distribution will be handled by Shanghai GM.
"It gives us tremendous cost advantages," Murtaugh said.
As for what kind of new product the plant will produce, "no final decision has been made," Murtaugh said. It should be one that sells about 50,000 units so the capacity can be fully utilized, he added.
GM is looking to add one or two new products to its China lineup this year, Murtaugh said, declining to elaborate.
Jinbei GM is partly owned by the Liaoning provincial government, where Jinbei is. In the agreement, those shares will go to Shanghai GM. GM China will transfer half of its 50 percent share in Jinbei to Shanghai Automotive Industry Corp.
In the restructured company, Shanghai GM will own 50 percent, and GM China and Shanghai Automotive Industry Corp. the two owners of Shanghai GM will each own 25 percent.
GM's manufacturing sites in China include Shanghai GM, Shanghai GM Dongyue Motors and SAIC-GM-Wuling.
With the addition of the Jinbei line, GM's total manufacturing capacity in China will be about 500,000 units.
Automakers in China have steadily added capacity over the last year to meet demand that topped 1.9 million in 2003 and is expected to rise by at least 20 percent annually for the next five years.
Archrival Volkswagen AG's two China joint ventures produced almost 700,000 cars last year. GM controlled 8.5 percent of the Chinese market in 2003, against some 33 percent for Volkswagen AG.
Its not just got to keep an eye on Volkswagen. The whole market is incredibly competitive now, said Liu Fei, an analyst at Automotive Resources Asia, an independent industry consultant. Its not a surprise GM felt it had to do this.
Ford Motor Co. is more than tripling capacity at its Changan Ford joint venture to 150,000, and just said it would build a plant in Nanjing. The capacity of that plant has not been disclosed.
Car sales in China smashed the 1 million-unit barrier in 2002 for the first time and exceeded 2 million in 2003. Sales are expected to jump another 40 percent this year as the economy races, putting money in the pockets of consumers.
Reuters contributed to this report.