Wednesday, April 20, 2005

The Associated Press Chinese journalists take photographs of a new model of General Motors' Chevrolet Aveo which is making its worldwide debut at Shanghai.

Automakers think small for big Shanghai motor show

By Christine Tierney / The Detroit News

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Behind the flash and glitter of the Shanghai motor show opening Thursday, leading automakers are showcasing small, practical and fuel-efficient cars for Chinese consumers squeezed by rising gas prices and lending rates.

General Motors Corp. is highlighting small and affordable models - in stark contrast to the extravagant launch last year of its Cadillac brand at the Beijing car show.

"The emphasis is on smaller cars now," says Yale Zhang, Shanghai-based analyst for data consulting firm CSM Worldwide.

All automakers are scrambling to adapt their product offerings in the promising but volatile Chinese car market. After two years of explosive growth in 2002 and 2003, when car sales more than doubled, demand cooled as the government clamped down on credit.

Car sales in March rose above year-earlier levels, but they are still down 8 percent for the first quarter. Automakers' profits have dropped even more as consumers gravitate to small cars, following the typical pattern in emerging markets.

In March, the top three sellers in were compacts or subcompacts - Hyundai's Elantra and two cars built by Chinese carmakers. In contrast to the initial boom fueled by pent-up demand from well-heeled Chinese entrepreneurs and professionals, "the big demand now is for cars priced around $7,500," Zhang said.

The highlight of GM's display in Shanghai is the all-new Chevrolet Aveo, an economical sedan developed in South Korea by GM Daewoo Auto & Technology. GM plans to assemble the car in China with its local partner Shanghai Automotive Industry Corp.

"We are also pleased to have the world's most advanced fuel-cell vehicle, the Sequel, at the show," said Troy Clarke, president of GM Asia Pacific.

This year, GM is launching 10 new or upgraded vehicles to fend off Chinese and other Asian rivals making rapid inroads into the market.

Investment firm Deutsche Bank estimates automakers will introduce 40 new models in China this year, double the number launched in 2004.

At the Shanghai show, which runs to April 28, Japan's fast-growing Nissan Motor Co. is displaying five models it plans to sell in China, including sedan and hatchback versions of the Tiida compact.

DaimlerChrysler AG's Chrysler Group will spotlight the popular Chrysler 300C sedan in Shanghai and the Grand Voyager minivan. It will display four Jeep models built locally, including a Jeep Cherokee with a new, smaller 2.4-liter engine.

DaimlerChrysler will also stage an "Energy for the Future" exhibit, featuring its newest fuel-cell cars.

Ford Motor Co. will show a Model U hybrid with a hydrogen-powered internal combustion engine.

The high-tech displays aim to please the Beijing government, which still retains tight controls on the industry and wants to steer automakers and consumers toward cleaner and more fuel-efficient cars. This year, it is imposing new fuel taxes in a bid to reduce China's dependence on oil imports and reduce pollution in its giant cities.

But visiting auto executives are focusing on the emerging trends that have made China a tougher market. In addition to weakening sales, automakers face hungry local rivals with ambitious plans and very low-cost operations. These operations have contributed to driving down car prices - and profit margins.

According to China's National Bureau of Statistics, the profits of China's automakers and car parts suppliers fell 62 percent in the first two months of the year.

GM said Tuesday that a drop in its profits in China led to a 78 percent decline in the first-quarter earnings of its GM Asia-Pacific operations to $60 million.

Recently GM's venture partner Shanghai Automotive - which also has a partnership with Germany's Volkswagen AG - issued a profit warning, saying it expected its first-quarter profit might be down more than 50 percent from last year's level.

Despite the current difficulties, automakers are still investing in China on expectations that the car market will recover from the slump and keep growing.

Toyota Motor Corp. has just opened a second assembly plant in Tianjin and plans to build a third factory in the northern Chinese city.

Ford, with its Chinese partner Changan Automotive Group and Japanese affiliate Mazda Motor Corp., announced plans this week to build an engine plant in Nanjing, as part of a $1 billion investment program CEO Bill Ford announced in 2003.

You can reach Christine Tierney at (313) 222-1463 or ctierney@detnews.com.