IN THIS SUMMARY Michael Dunne is an American businessman with over 20 years of experience working in China in the automotive industry, initially as an industry consultant and more recently as an investment advisor. In American Wheels, Chinese Roads, he puts his experience to work, telling the story of General Motors’ early years in China. He explains the rules of the road for doing business in China, providing colorful examples and anecdotes from Chrysler Jeep as well as GM. Dunne describes the importance of luck and licenses, the central role of joint ventures, and the enormous power of China’s city governments, which function almost like sovereign countries.
AMERICAN WHEELS CHINESE ROADSThe Story of General Motors in ChinaAUTHOR: Michael J. DunnePUBLISHER: John Wiley & Sons, Inc.DATE OF PUBLICATION: 2011218 pages
FEATURES OF THE BOOK American Wheels Chinese Roads By Michael J. Dunne American Wheels, Chinese Roads has widespread appeal. The author writes in an engaging style, painting vivid images and often building suspense from one chapter to the next. Both entertaining and educational, the book is not only a description of General Motor’s entry into China but also an excellent introduction to the ways of doing business in China in general.
THE BIG IDEA American Wheels Chinese Roads By Michael J. Dunne • License: China requires a license for most business activities. • Joint venture: All foreign companies making cars in China must do so in a joint venture with a Chinese partner. The Chinese partner must have at least 50 percent equity. • Chinese capitalism: China’s economy has been described as partly a command economy and partly unfettered capitalism. • City government: The central government of China has allowed substantial power to devolve to city governments which compete with one another…
INTRODUCTION American Wheels Chinese Roads By Michael J. Dunne Michael Dunne is an American businessman with over 20 years of experience working in China in the automotive industry, initially as an industry consultant and more recently as an investment advisor.
DEVELOPING THE OPPORTUNITY American Wheels Chinese Roads By Michael J. Dunne In the summer of 2010, the producers of 60 Minutes wanted to do a story about how General Motors had managed to thrive in China while the rest of the company had entered into bankruptcy. It would have been a good story, but GM executives refused. Viewers would have learned that every business initiative in China begins with a license, that to get a license in the car industry you must have a Chinese partner, and that these Chinese partners are usually a major municipality or even the central government itself. In addition, viewers would have learned that there are more car brands produced in China today than in any other market in the world, including the United States.
DEVELOPING THE OPPORTUNITY American Wheels Chinese Roads By Michael J. Dunne Many Detroits The Chinese economy is notable for the extent to which central government planners have allowed economic and political power to devolve to the cities, particularly when it comes to the automotive industry. City governments have become major centers of economic power. The country actually has six major “Detroits” and several minor ones, says Dunne, and there is fierce competition among them. Car-building cities act almost like sovereign countries, seeking to “export” their cars to other cities, and trying to restrict local buyers to buying locally.
DEVELOPING THE OPPORTUNITY American Wheels Chinese Roads By Michael J. Dunne The Kit Price GM made its first foray into the Chinese car market in 1992. It was a decidedly unsuccessful joint venture to build S-10 pickup trucks in the rather poor city of Shenyang. The S-10 was the wrong product at the wrong time. Chinese workers could not afford the relatively expensive truck and did not actually even need it. It was especially too expensive for buyers in Shenyang, and the buy-local mandate kept away potential buyers in other cities.
NEGOTIATING AND SIGNING THE DEAL American Wheels Chinese Roads By Michael J. Dunne With the partnership now official, negotiations turned to developing a business plan and dividing up the money of the new joint venture, Shanghai GM. The two partners in a 50/50 automotive joint venture, as was Shanghai GM, are equal, and yet they are not. Coming between them is the “kit price,” the price that the joint venture pays to the U.S. partner for the “knock-down kit,” the set of car parts made in a U.S. factory and shipped to China for assembly. All other money is divided up according to the equity shares, but any profit on the kits—any excess of what the joint venture pays above the cost of producing the kit—is exclusively the U.S. partner’s profit. GM would thus favor a higher kit price, while SAIC would prefer to keep the price down.
MAKING THE “RIGHT” CAR FOR CHINESEMARKETS American Wheels Chinese Roads By Michael J. Dunne By the time the Buick Century was launched in late 1998, Shanghai GM faced competition not only from the Passat but also from the Honda Accord, which was being produced at a factory Honda had acquired earlier in 1998 when a Peugeot joint venture filed for bankruptcy. Aided by government orders, Shanghai GM sold 20,000 Buicks in 1999 and 30,000 in 2000, but the Buick was being dramatically outsold by the Accord and the Passat. It appeared that Chinese buyers loved the prestige of the Buick but viewed it as a gas guzzler. Its 3-liter, V-6 engine could not compete for gas mileage with the 2-liter, 4-cylinder Passat and Accord. Acceleration and passing power did not matter as much to Chinese drivers as gas consumption.
FAST GROWTH AND ABRUPT CHANGE American Wheels Chinese Roads By Michael J. Dunne The next few years saw amazing growth. The Chinese car market soared from 3.6 million sales in 2005 to 10.5 million in 2009, surpassing the United States as the world’s largest car market. Some 90 percent of sales still settled in cash. With the Buick, Chevrolet, and Cadillac brands doing well, Kevin Wale focused on SAIC-GM-Wuling, a joint venture established by SAIC and GM in southern China in 2002 to build micro vans and micro trucks. Small cars and trucks, powered by engines comparable to U.S. motorcycle engines, were being used to transport people and goods all over the Chinese countryside. It was a promising new market for GM.
THE END OF THE BEGINNING American Wheels Chinese Roads By Michael J. Dunne What happens next in China’s automotive industry, and what does the future hold for GM in China? China has always been open about its automotive strategy: partner up with foreign companies, absorb the technology, and then make cars on its own. Thus far, China has built the partnerships, but the partnerships have mainly produced and sold already-designed cars from Japan, Europe, America, and Korea. The large profits China has earned in so doing—and sizable salaries of some employees—may have encouraged the Chinese to stop at this step. In addition, foreign partners have been reluctant to cede technology.
THE END OF THE BEGINNING American Wheels Chinese Roads By Michael J. Dunne The road to survival and success in China is arduous and long, Dunne reminds us, and it still begins with a license and a partner. Once a company has these, it is still competing with both the house and the player—the ones making the rules are also playing the game.
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