General Motors Co (GM.N) is “quite bullish” about the recovering auto market in China and is responding to a shift in growth toward utilitarian models in smaller cities, a segment often ignored by foreign automakers, said GM China chief Matt Tsien.
GM expects the market to grow to around 30 million vehicles by 2020 from 24.6 million last year, and that its local budget-car joint venture gives it an edge over global rivals in growth areas outside of major cities, Tsien said in an interview.
“And it is going to grow beyond that,” Tsien said, referring to China’s overall auto market. “There will be a point of saturation, but we are probably a decade away.”
China’s auto market has recovered from a mixed 2015 when sales overall fell each month from April through August, to register growth of 14.6 percent in the latest reporting month of June. But continued sluggishness in gross domestic product (GDP) growth adds unpredictability to the market’s near-term outlook.
Added to the changing nature of China’s auto market is what Tsien described as the rapid change in growth patterns.
Sales have stalled in “tier-one” mega-cities such as Beijing and Shanghai but continue unabated in smaller cities and rural areas where drivers favor basic, affordable cars – the kind of low-margin vehicles foreign automakers have largely neglected.
“Tier-one is near saturation,” said Tsien, 55, who has been running GM’s China operations since 2014. “But when you go into tier-three and -four cities, we saw double-digit growth for the whole of last year. It’s still growing at double-digits this year and will continue.”
Tsien said GM is better-positioned than foreign rivals in such cities because of investment in no-frills brands that began in the early 2000s when it created SAIC-GM-Wuling Auto (SGMW) with SAIC Motor Corp Ltd (600104.SS) and Guangxi Automobile Group, formerly Wuling.
SGMW’s two low-cost brands, Wuling and Baojun, sell at a rate of roughly two million vehicles a year.
“There is a lot of willingness from a consumer standpoint to spend,” said Tsien. “There is a lot of discretionary income. Stores are busy. Restaurants are busy. Internet shopping is booming.
“We continue to be quite bullish about the growth prospects of the Chinese auto industry. It’s going to continue to grow.”