General Motors (NYSE: GM) was counting on its rapidly growing sales in China to offset its troubles in the U.S. China has become one of the world's largest car markets and most estimates say it will move into first place within four or five years.
To the surprise of many, vehicle sales in China actually dropped in August compared with the same month a year ago.
According to The Wall Street Journal, the head of GM's operations in Asia "cut his prediction for 2008 growth in China's auto market, the world's second-largest after the U.S., to between 11% and 12%, down from the 12% to 15% growth he predicted in March." GM added that it expects the car market in China to grow at a double-digit rate for the next five years.
The news shows that GM may not be able to rely on extremely rapid improvement in markets outside the U.S. and Europe to balance bad business in the U.S. Part of GM's hope has been that, while it retools American plants to build fuel-efficient cars, overseas sales can keep its global revenue flat.
The car sales issue in China is broader than the effects on GM. The economy in the world most populated country is slowing. If that trend continues, the size of the Chinese middle class may stop rocketing up each year. That would mean that most of the people on the mainland who can afford a car already own one. If that is the case, GM and most other international car companies are going to have to tear up their five-year plans.
Douglas A. McIntyre is an editor at 24/7 Wall St.
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Reader Comments (Page 1 of 1)
9-17-2008 @ 11:52AM
Kent said...
I empathize with GM as I too tore up a lot of 5-year plans in the business I used to be in. Not a good feeling. I don't know what GM's corporate culture is like but I can surmise top management put the screws to the managers to meet their original goals. Evidently top execs and managers must have had heated discussions behind closed doors before making this announcement. 11-13% increase isn't bad but wonder if even that goal was a reluctant one : still too high for the managers and still too low for the bossses.
9-17-2008 @ 5:26PM
Walter said...
Well lets take a look at the big picture:
Gm moves production plants to China where they plan to have cheap labor.
But most people in China cannot afford a car so GM plans to sell the cars in the USA.But there is a problem with selling cars in the USA where everyone has lost their jobs to oversea moves.Gm planted the seed now they will have to watch and see if it grows.Not likely to happen.