GM unveils new brand in China, targets smaller cities

BEIJING Mon Nov 22, 2010 3:11am EST

BEIJING (Reuters) - General Motors (GM.N), the biggest overseas automaker in China, unveiled its first car under its newly created Baojun brand on Monday, as it steps up expansion in 3rd- and 4th-tier cities that are becoming its main growth driver in the world's largest auto market.

The initiative, building on the success of GM's Chevrolet new Sail, represents a direct challenge to indigenous players such as BYD (1211.HK) and Geely Automobile Holdings (0175.HK), which now dominates smaller cities and townships with affordable models.

"Those big coastal cities are rapidly becoming less than a quarter of our business, and the real growth is in what we call tier three, tier four cities," Terry Johnsson, vice president of GM's China operations, told Reuters in an interview. "It wouldn't be unexpected to see 60 percent of the business in tier 3 and tier 4 cities (in five years)."

GM and its partner SAIC Motor (600104.SS) had started to work on a new passenger car brand even before the launch of its new Sail, the cheapest foreign brand in China priced as low as 56,800 yuan ($8,600). It has been flying out of showrooms since its debut in January.

The Baojun 630, which rolled off the production line on Monday at SAIC-GM-Wuling's plant in southern China, is the first of a series of models GM and SAIC plan to launch in the coming years, combining GM's technologies and its partner's low cost manufacturing.

Nissan Motor (7201.T) and its Chinese partner Dongfeng Motor Group (0489.HK) also unveiled a new brand, Venucia, that is designed and developed specifically for the local market.

GM, which completed the biggest U.S. IPO in history last week, has yet to announce the price of Baojun 630 but executives had said the pricing will be "very competitive."

While efforts to tap the growing wealth of inland cities makes sense, industry analysts warn it may take consumers some time to accept new brands in a market swamped by dozens of foreign and local name players.

"They have not started selling the joint venture brands yet, and no one knows for sure how big the volume could be," said Marvin Zhu, senior market analyst at J.D. Power Asia Pacific.

"There is no doubt that they will win market share from local brands, but it takes time to win market acceptance initially."

EXPANDING IN SMALLER CITIES

China, which surpassed the United States as the biggest automaker in 2009, has been a safe haven for global industry giants that are still recovering from a steeper-than-expected downturn in 2009.

The country has been increasingly important for GM and it is now the biggest market for the Detroit automaker. GM and its Chinese partners, which also include FAW Group, have sold more than 2 million vehicles so far this year, exceeding the annual sales target for the full year.

While continuing to reap profit from pricier Buick and Cadillac models in wealthy, coastal cities, GM has also been stepping up its presence in inland areas that have been a major growth driver for its Chevrolet brand.

GM has roughly 550 Chevrolet dealers in China currently. The number would possibly double over the next three to five years, with most of the growth coming from outside tier-one areas, said Johnsson.

Other foreign automakers are also making the push.

In Tangshan, a small satellite city of the northern municipality of Tianjin, many foreign brands, including Volkswagen AG (VOWG_p.DE), Ford Motor (F.N) and BMW (BMWG.DE), have opened their state-of-the-art dealerships. Even Daimler AG's (DAIGn.DE) luxury Mercedes-Benz brand is seeking to establish a presence.

Next year, GM will add a second Chevrolet dealer in Tangshan, three times the size of the existing shop that first opened in 2005, according to Dai Xuemei, general manager of the existing Chevy dealer in the city.

"The new Sail is extremely popular here," she said. "Newly-wed couples here like to have the Sail as their first family car, and parents also love to have it as a dowry for their daughter."

(Editing by Lincoln Feast)

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