GM leads foreign charge to low-end China car market

Foreign automakers enjoying success in China may be gearing up to take on local players in the high-volume but competitive low-end market, following General Motors' recent roll-out of a model priced as low USD 8,300.

GM's move represents a direct challenge to domestic names like Geely Automobile Holdings and Chery Automobile, which have developed a reputation for making cheap cars for price-sensitive buyers.

For more than a decade, GM has competed with foreign rivals like Volkswagen in China's lucrative medium-to-high end segment, leaving the lower end to national brands, which now control about a third of the market selling to upwardly mobile consumers concentrated in smaller cities.

GM took aim at those brands with the launch in January of its new Sail under the Chevrolet brand, priced at between 56,800 and 68,800 yuan (USD 8,314-USD 10,070). The five door model is a far cry from GM's higher-end models in China, ranging from its Buick LaCrosse that costs up to 320,000 yuan, while a top-end Cadillac can cost more than 1.5 million yuan.

"It's a large portion of the market and our job is to compete wherever the market is," said Kevin Wale, GM's president and managing director for China.

As wealth grows in China, now the world's biggest auto market, smaller inland cities are quietly catching up with affluent coastal cities as major consumers of everything from automobiles to flat screen TVs and digital gadgets.

Car sales surged more than 50% in second and third-tier cities last year compared with 26% in Shanghai and 32% in Guangzhou, according to data provided by Gasgoo.com, a major Chinese auto parts trading platform.

"People in smaller cities do not have as much money as those in big cities. If a foreign car manufacturer like GM comes up with a model like Sail, it is an extremely attractive offer," said Klaus Paur, director for global industry consultancy TNS's North Asia automotive division.

BIG NAMES, LOW PRICES

In keeping with its aim of going after homegrown favorites like Chery's QQ or BYD's F3, GM unveiled the Sail in the inland city of Chengdu.

To support its low-end initiative, GM is planning a major expansion of its Chevrolet dealership network this year, bringing the total to over 500 from about 380 now, said Terry Johnsson, vice president of GM's China operations. Most of the new dealers will be in smaller cities.

GM has already logged more than 30,000 units in backorders after selling about 8,000 units of the Sail less than a month after its launch.