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GM Says China Luxury Vehicle Demand Slower Than Expected

A General Motors Co. Cadillac SRX SUV is displayed at a dealership in Shanghai. Photographer: Tomohiro Ohsumi/Bloomberg
A General Motors Co. Cadillac SRX SUV is displayed at a dealership in Shanghai. Photographer: Tomohiro Ohsumi/Bloomberg

June 19 (Bloomberg) -- General Motors Co., which broke ground on a new Cadillac assembly plant in China today, forecast demand for luxury autos will grow at a slower pace than the total vehicle market this year.

Sales of premium cars in China will probably increase about 4 percent this year, or about half the pace that the automaker had expected at the start of the year, Bob Socia, GM’s China head, said in a briefing in Shanghai today. The automaker has said it expects total industry sales to increase about 7 percent to 8 percent this year.

Demand for luxury items from Swiss watches to sports cars have slumped since President Xi Jinping, who took over as Communist Party secretary in November, ordered officials to cut down on lavish spending and stepped up investigations into graft. Sales in China, where German brands accounted for three in every four premium cars sold, are slowing at a time when European car deliveries are tumbling to a 20-year low.

“Even taking into consideration the crackdown on corruption, calls for frugality and slower economic growth, luxury car demand should hold at around 10 percent growth,” said Han Weiqi, an auto analyst with CSC International Holdings Ltd. in Shanghai. “GM’s estimate for 4 percent growth means they expect the segment will be pretty sluggish.”

Cadillac Sales

GM aims to more than triple Cadillac sales by 2015 in China to 100,000 as it brings out a new model every year through 2016.

Chief Executive Officer Dan Akerson, in Shanghai for the Cadillac factory ceremony, has said the luxury brand is a priority in the company’s plan to invest $11 billion in China through 2016. The automaker is targeting to win 10 percent of China’s luxury market by 2020.

Luxury-vehicle sales rose at more than twice the pace of the total passenger-vehicle market last year, according to industry researcher LMC Automotive.

It will take some time for GM to catch up to Audi and Bayerische Motoren Werke AG in luxury sales, Akerson said today, though “as they say all long journeys start with a first step.”

“You have to build a brand in a market like China,” he said. “Twenty five, 30 years ago, you didn’t see many Audis in the United States, not that many BMWs. If you bring good products to the market, then it’s up to us to sell, make the public aware of the features, functionality and quality of the car.”

Rising Incomes

Rising consumer incomes and an increase in manufacturing capacity will help GM achieve its target to sell 5 million vehicles in China by 2015, Akerson said. The Detroit-based automaker is targeting to at least maintain its market share in China, he said.

China became GM’s largest market in 2010 and while the Detroit company lags behind luxury competitors, it’s No. 1 among foreign automakers in total sales on growing deliveries of Buick, Chevrolet and small, commercial vehicles sold under the Wuling brand.

GM plans to almost double exports from China to as many as 130,000 vehicles this year, from 70,000 in 2012, targeting emerging markets, Socia said. There are no plans to export to the U.S. from China, he said.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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