SHANGHAI (Reuters) -- General Motors will send its top UK executive to take charge in China after the ex-chief's surprise resignation raised questions about business in GM's second-largest market.
GM said on Thursday that European vice president and chairman of UK operations Kevin Wale will replace Phil Murtaugh -- a nine-year China veteran who joined GM in 1973 and was instrumental in forging a venture with Shanghai Automotive Industry Corp., the country's largest carmaker.
Wale joins at a difficult time for GM, which lags Volkswagen AG in China, the world's third-largest vehicle market which has been convulsed by slowing sales, price wars and ballooning unsold inventories.
Analysts say Murtaugh's departure might also deprive GM of some of its laboriously cultivated contacts among its domestic partners and with the government of China's commercial hub.
GM appeared to be addressing those concerns.
Australian-born Wale, also chairman of GM's Vauxhall Motor Co., once headed the company's Asia Pacific operations.
"His familiarity with China and Asia Pacific comes from playing a key role in the development of our product and growth strategies, which laid the groundwork for our current presence," GM Asia Pacific President Troy Clarke said in a statement.
Murtaugh will remain in the job for a short period to ease the transition, GM said, stressing that his departure had nothing to do with the company's performance in China.
"He left for personal reasons and GM would love to keep him," GM China spokeswoman Daphne Zheng said.
He had been part of GM's China operations since 1996 and was well regarded for having built up GM's market share to about 10 percent, chipping away at Volkswagen's once-commanding lead.
"The new person will have to maintain Murtaugh's good relations with Shanghai Auto, and building up that confidence won't happen at once," said a senior Shanghai-based industry analyst, who declined to be identified.
"He will also have to turn sales around at a time when there are no clear signs the market has begun to recover," the analyst added.
After stellar growth, sales began decelerating in mid-2004 as Beijing imposed credit curbs to slow its racing economy, and have not recovered since. Vehicle sales fell 13 percent in February.
But GM said it was still outperforming the market.
While company sales in the first two months of this year were down 5.9 percent, the overall market was off more than 10 percent, and GM's market share has climbed to more than 10 percent from just over 9 percent in 2004, it said.
"We are performing to expectations and expect to achieve another double digit growth this year," Zheng added.
Still, slowing sales have added to the overall woes at GM, which has been losing money in Europe for years and warned this month that its 2005 earnings will be as much as 80 percent below a previous forecast, due to slumping North American auto sales.
GM's once dominant share of its key U.S. market has dropped to below 25 percent as foreign automakers have made steady inroads.
GM's warning spurred Standard & Poor's to caution it could downgrade the Detroit giant's debt to "junk" status at any time, and sent its shares down to a 12-1/2-year low.
GM's portion of its joint venture profits in China totaled $417 million last year, just $3 million higher than in 2003. In January, it forecast net income from its Asia Pacific operations, where China accounts for the bulk of profits, of just $600 million this year, down from $729 million in 2004.
Some analysts now see that forecast as overly optimistic.
GM's net earnings from China in the fourth quarter plunged 68 percent to $33 million -- accounting for some 5 percent of total net earnings of $630 million, down dramatically from about 20 percent in the third quarter.