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GM finds surprising success in China

Six decades after the communist revolution, China has become the hottest capitalist engine on earth. And ironically, some of the most revered symbols of success in today’s China are Cadillac, Buick and Chevrolet. CNBC's Phil LeBeau rpeorts from China.
/ Source: CNBC

The old symbols are still there: the monuments, the uniforms, even the red flag.

But on the streets of today’s China there are a growing number of new icons that Mao Zedong never dreamed of, with prestigious names like Rolex, Louis Vuitton — and Buick.  

That’s right, Buick. Look anywhere in China and there they are: Buick sedans, Buick station wagons, even Buick police cars.

What would Chairman Mao think? Six decades after the communist revolution, China has become the hottest capitalist engine on earth. And ironically, some of the most revered symbols of success in today’s China are Cadillac, Buick and Chevrolet.

General Motors may be struggling at home, but it is thriving in China. In 2007, GM sold nearly twice as many Buicks in China as it did in the United States — more than 330,000. In this part of the world, your grandfather’s stodgy old car is actually hip.  

“Growing so fast is not easy,” said GM CEO Rick Wagoner. ”But it’s better than shrinking, I promise you.”

We joined Wagoner on a recent trip to China, and found him awestruck by the country’s economic vitality.  

"In a way it is — I don’t know what it is — 30, 40, 50 years of progress in 12 years,” he said. “It’s like things run here in triple time."

In 1997, Wagoner and his then-boss Jack Smith made a gamble, betting $1.5 billion that GM could build and sell cars in China.

Partnering with a once-hostile Communist government in a country moving mostly on bicycles, GM was taking a big risk. 

But Wagoner believed the Chinese were ready to trade two wheels for four, and he wanted GM to go along for the ride.

“Back in 1997, the Chinese market was about 1.5 million units,” he said. “We sold about 60,000. So I don’t think, to be fair, anyone could see the extent of the potential.” 

Wagoner’s hunch was that 1.4 billion Chinese — long denied access to Western goods — would be starving for legendary brands like Buick, Cadillac and Chevrolet.

In the end, Wagoner was right. Just ask Zhoucheng Ye, a 36-year-old businessman from Shanghai province.

He and his brother traveled three hours to a Chevrolet dealership here in Shanghai to buy his very first car, a brand new Chevy Aveo.

“I saw Chevrolet is very heavily used, I saw a lot of them on the streets,” Zhoucheng told us through a translator. “Chevrolet has very good quality and quality is very important for Chinese.”

Zhoucheng may be new to car buying, but he works the deal like a pro. Zhoucheng and the dealer settle on a price of 76,000 Chinese Yuan — roughly $11,000 — which Zhoucheng pays in full using a bank debit card. Like a new-car buyer anywhere, Zhoucheng is delighted with his purchase. 

So why buy American instead of a car made by a Chinese manufacturer?

“American producers have a longer history of producing cars and they have better techniques,” said Zhoucheng.

There’s just one problem: Zhoucheng doesn’t have a driver’s license, so his brother will have to drive the new car home. Still, Zhoucheng is thrilled, and so is GM.

The automaker has captured 12 percent of the growing Chinese automobile market, the largest share of any car maker here. It’s a story playing out in other countries, too. 

GM is investing heavily in places like India, Brazil and Russia. Eastern Europe, where the Chevrolet brand is on fire, is one of GM’s hottest markets. Apparently, ex-communists love Chevy.

GM’s global strategy has silenced critics who argued its capital belonged at home, rather than abroad. 

We saw an example of that first hand at Daewoo Motors in South Korea.

In 2002, Daewoo was bankrupt, broken, and looking for a buyer. GM was looking for opportunities overseas, and so in 2002 a deal was made between the two automakers.  

Today, under GM ownership, Daewoo’s factory floors are humming and its bottom line is booming. 

When GM bought Daewoo back in 2002, it was considered a struggling second-tier automaker making about 280,000 vehicles a year. Under GM’s leadership things have changed. GM has been shaking up the company by spending more on its overseas operations.

Before GM, Daewoo was struggling to make 300,000 cars a year. This year, GM Daewoo will sell 2.1 million vehicles under 8 nameplates sold in 150 countries around the world.

Daewoo is also cranking out profits.

But if South Korea is one of GM’s diamonds, then China — with its potential for staggering growth — is GM’s crown jewel. And Wagoner is determined to keep it that way.

"We like our position, we are proud of it,” he said. “But that just means we can play tomorrow. If you rest here you are going to be in trouble. Competition from everywhere around the world is roaring in.”

Wagoner has to be vigilant.

The fact is, General Motors makes more money selling cars overseas than in the United States.

And with more than a million vehicles sold here in 2007, China is no sideshow for GM. It is its future — a point Wagoner drives home to his top executives.

"This seems like the eighth year in a row where we come over and we had to increase the Asia forecast during the year,” he said

That’s why GM chose China to unveil a new Buick concept car — and why Wagoner never misses the Beijing motor show.

At six feet four Wagoner, a former Duke basketball player, is a commanding presence at the motor show. He puts on a full court press with his political skills, working the crowd and offering congratulations and appreciation to the leaders of GM’s operations here.

As Wagoner walks the show floor, he’s confronted with a stunning array of Chinese competitors — nearly four dozen of them — spinning out everything from micro-cars to Hummer rip-offs. Brands with names like “Soueast,” “Polarsun” and “Dongfeng.”

"There are 46 brands here gunning for each other,” said auto industry analyst Michael Dunne, who covers the Asian auto market for global marketing firm J.D. Power and Associates. “If you make a mistake you will be taken down.”

Dunne says GM better watch its back in China.

"GM has done a lot of things right to get to where it is today,” he said. “They will have to continue to get all of them right to maintain their position in the market. They slip? Someone will take it from them.”

Dunne says he’s optimistic GM will maintain its position — but he’s also realistic.

"If you look worldwide at what happens when GM goes up against Toyota and Honda, the Japanese time and time again win,” he said. “GM has got to do even better here in China if it hopes to keep its edge.”

Wagoner seems well aware that staying on top in China won’t be easy.

"I have not seen anything to suggest this industry is going to be an easier place to compete,” he said. “And I think it would be crazy not to expect there’ll be some Chinese players that are serious global competitors over the next decade or so.”

The car business is brutal, and it won’t be long before the Chinese get the hang of it.

But in what will soon be the world’s largest car market, GM has a big head start. And when GM’s U.S. troubles keep him up at night Wagoner can remind himself — at least for now — that “Buick” is Chinese for "success."