Gm in China - Individual Case Analysis

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of future motor vehicle sales. (p. 2)

In 2004, sedans represented 44% of motor vehicle sales in china, with truks at 30% and buses at 26%. (p. 5)

...the threat of oil shortages and higher gasoline prices... Long-term constraints included a very poor highway system - in fact, one analyst suggested that"China has no national highway system." Driving was basically restricted to the roads within each city. Air pollution had become a major concern, and this could also limit China’s motor vehicle growth. (p. 7)

China required new infrastructure expenditures, particularly for the rawing cities along the coast, but also for huge inland projects like the Three Gorges project that would be necessary to generate hydro-electric power. At the same time...a shift of population from rural areas to the cities... (p. 13)

Exhibit 4; Foreign Ownership, Number of Joint Ventures sections. (p. 19)

Data Pertaining to Location of Plants:

Dong Yue Automotive Powertrain Co. Ltd. was located in Yantai, Shandong in northeastern China...the facility would have an annual manufacturing capacity of 300,000 engines, providing engines for vehicles manufactured in China by GM and SAIC’s joint ventures. (p. 3)

Shanghai GM was a Shanghai-based 50-50 joint venture with SAIC...Shanghai GM began producing engines in 1998. Its powertrain facility had an annual production capacity of 180,000 V-6 engines, 75,000 L-4 engines and 100,000 automatic transmissions. (p. 2)

GM Warehousing and Trading was located in Shanghai’s Waigaoquiao Free Trade Zone...It was established to ensure the quick delivery of genuine GM and AC Delco parts to customers in mainland China. The PDC featured a fully computerized management and inventory control system and stocked about 25,000 different parts. (p. 3)

GM china was a wholly owned venture based in Shanghai. it housed all of GM’s local staff and was the investor in GM’s vehicle joint ventures in China. (p. 4)

Getting on the Bus:

Bus segment is already 26% of the vehicle market in China

We foresee growth in the bus segment because mass transit helps address the following issues:

Higher fuel costs

Pollution

Growing urban population

Lack of roads outside of urban areas

Anticipated large government investments in infrastructure

Due to regulatory cap on # of joint ventures permitted in each segment, bus segment is the only one with room for GM China to grow

Location, Location, Location:

Take advantage of existing infrastructure in Shanghai and Shandong.

Suppliers

Logistics

Existing engine, powertrain, and transmission production in these areas

Locate in the free trade zone

Locate in urban areas, close to where buses will be needed most

Implementation:

1. Leverage financial position/ownership/decision makers

• Immediate/QTR 4 2004

2. Form new joint ventures/begin application process

• Immediate/QTR 4 2004

3. Secure geographic locations/purchase land & begin construction of new facilities

• Immediate/QTR 4 2004

4. Initiate engineering and R & D resources to design buses

• Immediate/QTR 4 2004

5. Determine long-term solutions

• Export opportunities using China-based production.

• Supply chain, logistics and distribution channels

• Infrastructure

• Production and operating capacities

6. Continuously reevaluate strategy in light of changing and uncertain environment

Control:

Conduct Quarterly & Annual reviews to match actual sales, profit per vehicle and profit margins against projected numbers.

Have operational bus manufacturing infrastructure & distribution ready - 3rdQ 2005.

Increased total net profits in 2006 with introduction of bus sales.

Compare return on capital employed (ROCE) of new bus ventures against other GM China joint ventures to determine value of each venture.

Remain profitable through the use of innovative strategies to maintain existing and create future competitive advantages.

Contingencies:

Selected joint venture partners aren’t interested in participating

(Could select different partners)

New/changing government regulations create new, unforeseen barriers

Economic collapse

Questions?

Profit Margins

Year

2003

2004

2005

2006

2007

Net Profit ÷

$875m

$868m

$859m

$850m

$788m

Revenue =

$3,867m

$4,254m

$4,679m

$5,147m

$5,300m

Profit Margin

22.6%

20.4%

18.4%

16.5%

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