GM to Build Cadillac Plant in China

SHANGHAI—General Motors Co. said its Shanghai GM joint venture received permission from Chinese authorities to build an eight billion yuan ($1.3 billion) factory to manufacture its Cadillac brand, boosting the auto maker's ambition of becoming a larger player in China's booming luxury-car market.

"We've decided that the luxury market is going to grow and we want a bigger share," said Dayna Hart, a spokeswoman for GM in China.

Shanghai GM first disclosed plans for a Cadillac factory to supply the Chinese market in April 2012. The National Development and Reform Commission recently approved the plant, a GM spokeswoman said.

Last month, GM said its Chinese joint ventures would invest $11 billion by 2016 to expand their combined production capacity by 30% to five million vehicles a year. 

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The Detroit-based auto maker earned $550 million in the first quarter from its Chinese joint ventures, estimated Barclays. GM doesn't separately break out its China profit.

The Cadillac factory would be able to produce up to 150,000 vehicles a year when completed. Construction is scheduled to begin in June, but a U.S. spokesman couldn't say when production would begin. The facility will be built in Jinqiao, Shanghai, where GM's biggest joint venture, Shanghai GM, and GM China's headquarters are located.

GM launched its Cadillac XTS sedan here in March. The company has also introduced refreshed editions of the luxury SUV SRX, Cadillac's best-selling model in China. GM has said it would bring Cadillac's global portfolio to China by adding one model per year through 2016.

Last year, Cadillac sold just 30,000 vehicles in China. GM said in January it aimed to increase Cadillac sales to 100,000 a year here by 2016. GM has said its longer-term goal is to take Cadillac's share of the luxury-car market to 10% by 2020.

Car sales in China rose 7.1% in 2012 to 15.5 million vehicles, according to the semiofficial China Association of Automobile Manufacturers. The Chinese premium car market accounts for 9% of all passenger-car sales, according to consultancy McKinsey & Co., compared with 4% in Japan and 6% in South Korea.

McKinsey expects 12% annual growth through 2020, outperforming 8% growth projected for the broader car market.

The consultancy expects China's premium car market to reach three million units by 2020 and says the country could become the world's largest premium car market as early as 2016, ahead of the U.S. and Germany.

"The potential of premium segment is still big with many consumers upgrading their first car. If the product is good then the risk can be quite low," said Yale Zhang, managing director of Automotive Foresight (Shanghai) Co., an automotive consulting company in China. "Cadillac will gain market share in the foreseeable future."

The GM spokeswoman didn't comment directly on recent moves by the Chinese government to encourage officials to deploy domestic brands in their fleets, but noted other segments of the market promised growth.

"There are a lot of young and affluent buyers out there" interested in buying luxury cars, she said.

Macquarie's Ms. Lewis said that to win over such consumers, GM would have to convince them that American brands can be luxury brands. "I think for now Chinese consumers associate 'old-world, European' with luxury, rather than 'new world, American,'" she said.

 

Source: wsj.com