General Motors Co (NYSE: GM) is bullish regarding the recovering Chinese auto market and is responding to a transition in growth towards more utilitarian models in smaller cities. According to the chief of GM China Matt Tsien, this segment is frequently ignored by foreign car manufacturers.
The auto giant anticipates that the market will expand to approximately 30 million vehicles by the year 2020 from the previous year’s 24.6 million vehicles. Moreover, Tsien stated in an interview that GM China also expects that its local budget-car joint venture will be able to provide it a competitive edge over its international competitors in growth areas outside the major cities.
“And it is going to grow beyond that,” said the GM China chief, referring to the overall auto market of the Asian country.
“There will be a point of saturation, but we are probably a decade away,” Tsien further added.
The Chinese auto market has rebounded from mixed results last year when total sales dropped every month starting April through August to post a 14.6 percent growth during the latest reporting month of June. However, continued slow down in the growth of the gross domestic product (GDP) adds to the near-term outlook’s unpredictability.
Added to the shifting nature of the auto market of the Asian nation is what the GM China chief described as the fast change in the patterns of growth.
The sales in tier-one mega-cities including Shanghai and Beijing have stalled. However, sales were unchanged in smaller cities and rural locations where drivers prefer basic and affordable vehicles—the type of low-margin cars that foreign car companies have neglected.
According to the GM China chief, “Tier-one is near saturation.”
“But when you go into tier-three and -four cities, we saw double-digit growth for the whole of last year. It’s still growing at double-digits this year and will continue,” Tsien further stated.
The Chief stated that the automaker is better-positioned in comparison to foreign competitors in such cities because of investment in no-frills brand, which started during the early 2000s when it established SAIC-GM-Wuling Auto with SAIC Motor Corp and Guangxi Automobile Group.
The two low-cost brands of SAIC-GM-Wuling Auto namely, Wuling and Baojun, sell at a rate of approximately 2 million vehicles per year.
“There is a lot of willingness from a consumer standpoint to spend,” said the GM China chief.
Tsien also stated, “There is a lot of discretionary income. Stores are busy. Restaurants are busy. Internet shopping is booming.”
“We continue to be quite bullish about the growth prospects of the Chinese auto industry. It’s going to continue to grow,” he further added.
As of the time of writing, the General Motors stock is changing hands at $31.54.