GM's China sales growth slows on more competition

July 2 (Bloomberg) -- General Motors Corp., the biggest overseas automaker in China, said sales growth in the country slowed in the first half as competition intensified with Toyota Motor Corp. and Volkswagen AG.

The carmaker boosted sales by about 14 percent from a year earlier in China over the past six months to more than 590,000 vehicles, Joseph Lau, vice president for GM China, said in a telephone interview today, citing preliminary data. That compares with a growth rate of 19 percent last year.

GM, which hasn't had a yearly profit since 2004, is counting on growth in China, where the overall market grew 19 percent through May, as demand in North America plunges. Toyota started selling the Yaris compact in the first half and Volkswagen introduced the Lavida compact, while GM didn't have any brand new models in the country.

"Shanghai GM has been facing difficulties by relying on existing models to compete with rivals that have added new ones," said Lau. Shanghai General Motors Co. is GM's sole car venture in China.

Demand in China has made Asia Detroit-based GM's second- most profitable market. It earned $286 million before taxes in the region in the first quarter compared with a $812 million loss in North America.

The slowdown comes as the company's sales in the U.S. plunge. GM's U.S. sales dropped 16 percent in the first half, outpacing the overall market's 10 percent decline.

Sales growth may slow further in the second half of the year as inflation, higher fuel prices and a declining stock market hurt consumer demand, Lau said. He expects GM to keep its 12 percent market share this year.

New Buick Model

GM, which added three revamped models in the first half, will start selling its first hybrid car in China, a locally made version of the Buick Lacrosse sedan, around late July or early August, Lau said. It will be their sole brand new model in the market this year, according to Lau.

Prices for regular gasoline rose 16 percent to 6.2 yuan a liter ($3.42 a gallon) in Beijing on June 20th after the government raised wholesale fuel prices.

"GM is going through a downturn in China this year because of a lack of popular new models," said Yi Junfeng, an analyst at Changjiang Securities Co. in Shanghai. "Given the rising fuel prices, GM will find it even harder to expand sales in the second half."

The company plans to add a new Buick sedan in China in the first quarter of 2009 to challenge Toyota's Camry and Volkswagen's Magotan, said Lau. The model will be produced in Shanghai.

Volkswagen, Toyota

Volkswagen started building at least six new or revamped models in China in the first half. It added the Lavida compact car last month.

Toyota boosted sales in China 62 percent last year to 500,000 on the popularity of Camry and Corolla sedans and aims to lift sales 40 percent this year. The Camry was the country's fourth-bestselling car last year following Volkswagen's Santana and Jetta and GM's Excelle.

GM plans to invest as much as $5 billion in China over five years through 2012 to expand its share of the world's fastest growing major vehicle market, Kevin Wale, president of GM's China unit said in December.

The company plans to spend about $1 billion a year on car and engine development, production facilities, technical and after-sales support and infrastructure, according to the company.

"GM is optimistic about demand in the Chinese market and will actively keep on investing in China over the next five years," said Lau.