General Motors’ sustained success in The People’s Republic of China is undisputed: along with its joint venture parters, The General sold 251,812 vehicles in October of 2012 — a 14.3 percent year-over-year increase, marking its best October ever in the Middle Kingdom. Last month, GM sold over 260,000 vehicles — representing an impressive 9.7 percent year-over-year jump. But the automaker’s dominance of the world’s largest car market is seeing strong competition from rivals, mostly Volkswagen — which is building a formidable presence in the country with strong-selling models.
Shanghai Volkswagen, VW’s joint venture with SAIC — the same Chinese firm with which GM operates several joint ventures in the country, sold 104,544 VWs in November — a 24.3 percent increase compared to the same time period a year ago. Complementing that number was roughly 30,000 sales of Audi models — nearly twice as many as any other luxury brand in the country.
And while GM is outselling VW and Audi by approximately 100,000 units in China, it isn’t making more money than its German rival: through June of 2012, VW earned 1.8 billion euros ($2.3 billion) from its Chinese joint ventures, while GM earned $700 million. Why the difference, given such a huge discrepancy in sales volume? The answer lies in the sales mix of both firms.
Even though Buick is held in high regard and sells a significant amount of units (of at least one model) in China, about half of GM’s sales volume comes from Wuling vehicles — plebeian and cheap minivans mostly used by small businesses. GM and its Shanghai-GM-Wuling joint venture sells a lot of these vehicles, but profit on a per-unit basis is minuscule, even before GM splits the earnings with its partners. For its part, VW does sell a few low-cost vehicles, but most of its sales come from mid-range offerings that have significantly higher margins than Wulings. And that’s before you take into account high-margin Audi sales, which made up 46 percent of VW’s global profit in the second quarter of 2012.
Audi, in fact, has become the de-facto luxury brand of the Middle Kingdom’s wealthy and powerful, while GM’s Cadillac has sold just a couple thousand units a month. That’s why GM is planning for big things for Cadillac, whose “Art & Science” design aesthetic, inspired by stealth military planes characterized by sharp lines and jagged edges, have been received as too bold by Chinese luxury car buyers. Instead, the Chinese seem to be enamored with Audi’s smooth and flowing shapes — even though they hold the Cadillac brand in high regard.
Cadillac is addressing the design objection by refining Cadillac’s Art & Science design — starting with the new ATS compact sport sedan. The ATS, Cadillac’s best attempt to date to close the gap with, and in some cases outperform, the BMW 3 Series, Audi A4, and Mercedes-Benz C-Class, has a much more fluid design than the larger CTS, which will also receive a complete redesign in 2013. Indeed, the brand’s future design aesthetics may have been foreshadowed by the well-received Cadillac Ciel concept, which features softer design cues. Design, however, is only a small part of the problem — and a subjective one, at that.
The other issue is that Cadillacs are still more expensive in China than luxury vehicles from competitors — as only one model bearing the Wreath and Crest, the SLS — is produced locally. All other Cadillac models are imported into The People’s Republic and are thus subjected to a hefty tariff. Fortunately, GM is addressing this issue by building plants that will make Cadillacs in China, specifically for the Chinese market, starting with the ATS, XTS, and next-generation CTS.
More new models, along with styling that better attracts more global buyers, will likely boost Caddy sales around the world — increasing GM’s profitability and, in turn, allow it to better take on aggressive competitors such as VW. Luckily, growing Cadillac sales is part of GM CEO Dan Akerson‘s strategy to increase the automaker’s profitability; Akerson is planning for Cadillac sales in China to equal those in the U.S. by 2015, a target Caddy’s new chief will likely help in reaching. And at that point, Wuling sales for GM should simply be icing on the cake — since most of GM’s profit in China should originate from sales of “real” GM products — Chevrolet, Buick, and Cadillac.