GM to build Cadillac plant in China

The Wall Street Journal (Shanghai) - General Motors Co. GM -0.65% said it received permission from

Chinese authorities to build an 8 billion yuan ($1.3 billion) factory to manufacture its Cadillac brand, boosting the U.S. 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.

The move comes at a time when many of the leading premium brands, including Daimler AG's DAI.XE -0.46% Mercedes-Benz and BMW AG, are looking at single-digit growth this year as growth in the premium market slows. In 2012, BMW's China sales rose around 40%.

GM first announced in April 2012 its plans to build at least one factory for Cadillacs in China. Ms. Hart said the National Development and Reform Commission had approved the plant recently, but didn't specify a date.

The facility will have a capacity of up to 150,000 vehicles. Construction is scheduled to begin in June. The facility will be built in Jinqiao, Shanghai where GM's joint venture Shanghai GM and GM China headquarters are located.

The plant will initially produce the luxury Cadillac XTS sedan, which was launched in the market in March. GM 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.

"Cadillac remains a tiny player in the premium space in China and faces an uphill battle competing directly with the German three luxury players," said Janet Lewis, an analyst with Macquarie Securities.

For every Cadillac sold in China, BMW AG sells roughly six of its cars and Audi AG NSU.XE 0.80% nine, she said.

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 forecast 8% growth in 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."

GM's Ms. Hart 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," Ms. Hart 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.