GM to Soar in 2012 on China Success?

GM vehicles are expected to fly out of Chinese showrooms in 2012. In America, General Motors GM vehicles are already flying…right off the road! The Associated Press reports (via Jalopnik) that GM is recalling 4,296 Chevy Sonics because of the “possibility” that some are missing an inner or outer brake pad. AP reports that affected customers will not receive dealer letters until January 14 (at the soonest), so if you own a Sonic, you might want to hold off on driving it for a while. GM's recall is certainly a troubling one. It's reminiscent of the near endless Toyota TM recalls of 2010. But going into the new year, the company is expected to take advantage of the growing Chinese auto market. “I think, in the context of Ford F and GM, GM is in a good place in China,” said Alexander Potter, a Piper Jaffray analyst who focuses on Chinese industrial growth companies listed on both the Hong Kong and U.S. exchanges. Potter spoke with Benzinga this afternoon regarding the potential success for U.S. automakers in China. “I think Ford is going to have a steeper hill to climb. Now is not the time to enter the Chinese market,” said Potter. “GM is already entrenched. China's market will grow faster than mature markets, but not at 20% or 30%.” Potter noted that the selection of automaker brands in China exceeds that of the United States. He said that to be successful in China, auto companies will need to have a good brand and a maintainable price. Potter added that Buick is doing really well in China, particularly because the Buick Regal is being used as a government vehicle. He said that Chinese consumers think of Buick as a solid brand, but they do not feel that way about Ford. Hence the “steeper hill” Ford must climb to be successful in that region. And thanks to a new Chinese tariff being used to keep American companies from selling foreign cars in the nation, that job is about to get a lot more difficult. According to NPR, China plans to increase duties on some U.S.-made vehicles (specifically those with engines that are larger than 2.5 liters). Economists have repeatedly argued that tariffs and other import barriers are detrimental – not beneficial – to a nation's growth and long-term success. However, while China is more than happy to invade the United States with as many exports as possible, it clearly does not like the idea of Americans entering its own territory. That is understandable, especially when you consider the threat that American automakers pose to Chinese companies. But it will not help the nation. If anything, it might actually make American politicians think twice before sending additional jobs overseas (not likely, but we can dream, right?). International news agency AFP later reported that China was challenging its tariff critics to bring the case to the World Trade Organization. AFP quoted Chinese Commerce Minister Chen Deming, who told journalists, “We need to differentiate between protectionism and normal trade remedies.” “China according to WTO rules ... conducted in an open manner and rule-based manner investigations into US car imports in China and decided to impose anti-dumping and countervailing measures," he said. Deming added that this was “in line with WTO rules” and “not a form of protectionism.” If anyone begs to differ, “the best solution is to ask the WTO experts to rule," he said. In other words, China has no plans to reverse its decision, nor does the nation expect to be forced into removing the tariff. (Deming did, however, tell AFP that China would respect WTO's verdict.) Since GM already has a significant presence in China, and since the Regal is already a hit (more than three million have already been sold), the automaker should have an easier time adapting than its U.S. competitors. GM also manufactures most of its Chinese vehicles right in China, which should allow it to bypass the new financial burden imposed by the Chinese government. With or without the tariffs, the Chinese market may not be as prosperous as people think. Potter told Benzinga to expect high single- to low-double-digit growth in the consumer passenger vehicle market in China.
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