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American Wheels, Chinese Roads: The Story of General Motors in China

Taking the first step is so sublime, so enthralling, so utterly enticing that no businessman can resist. The tree-lined, flower-petaled path lures you, like a moth to the light, to the shining entrance of the world’s most promising marketplace: China. As you approach the gates and prepare to pass through into this lucrative and boundless market, you discover that they are locked. Never mind looking for a key. These forbidding gates can be opened only from the inside. You must be invited to enter. And then you may proceed only in the company of a chaperone. This isn’t a dream sequence. This is the reality of doing business in China. General Motors found itself in just this position in the early 1990. It wanted to “open up” the China market, but found that the doors were shut tight. Government officials in Beijing had already issued joint venture car production licenses to a handful of companies. Including Chrysler and Volkswagen. But GM had to wait. And wait some more. As a student intern a GM headquarters in Detroit in the summer of 1989, I witnessed the waiting period firsthand. I was assigned to devise a distribution strategy for China just in case, one day, China decided to invite GM inside. GM’s own “culture” was crystallized for me in one unforgettable moment when I was preparing a presentation to the higher-ups at the end of my eight-week tenure. My supervisor walked through the report and then offered only one piece of advice: “Whatever you do, just make sure to C-Y-A.” “”C-Y-A”?” “Cover your ass. The bosses will know little about China,” he explained, “but that won’t stop them from calling you out, just to show they know something about Asia.” I had little to fear about covering anything. I was born and raised and Detroit, I’d had behind – the-wheel access to every new car in America sold during the previous nine years, and I’d taught and studied at Chongqing’s Institute of Architecture and Engineering for a year before coming to GM. China at the time was still a tiny car market, with annual sales less than that of the state of Michigan. The Chongqing University where I studied, home to fifteen thousand people, owned a grand total of one car—the Red Flag, a ponderous four-door sedan based on the 1955 Chrysler Imperial. But the small demand for cars did nothing to deter the appetite for stamping a footprint in the biggest potential market in Asia, a pressing hunger easily fueled by imagination: With all those people, just think how giant China’s car market could one day be! We could make a killing just selling hubcaps!

Even super optimists, however, could not have imagined that twenty years later, China would be the world’s number one car market, handily surpassing the United States. And no one inside GM could have dreamt that in 2010 the company would sell one million cars—Chevys, Buicks, and Cadillacs—to Chinese customers. Once GM secured passage through the front gates into the Middle Kingdom, the company almost immediately discovered that China is a tough and unpredictable place to do business. For every delicious opportunity to make a fortune, there is a promise broken. And there are shifting government rules at every turn. The untold story is that GM’s road to success in China has never been straight or easy. The company waited long years just to get permission to build passenger cars in China. It was not until 1999 that Shanghai GM started production of its first model, the Buick Century. GM has prevailed thanks to gutsy leadership, perseverance, and yes, some good old-fashioned luck. Never before in the history of the automobile has the industry seen growth as explosive as it’s been in China. That’s where the luck came in. Annual demand for new cars has rocketed from six hundred forty thousand cars in 2000 to more than eleven million in 2010. GM’s operations with its Chinese partners today generate billions of dollars of revenues and hundreds of millions of dollars in profits. GM’s success in China stands in sharp contrast to the failures in North America and Europe that led the company into bankruptcy in 2009. The fact that GM in China could triumph while its parent company was self-destructing is both remarkable and revealing. And yet, there remains a certain fragility to GM’s success in China. Buick, Cadillac, and Chevrolet must compete for market share against fifty other marques—Toyota, Honda, Hyundai, Volkswagen, and other industry powerhouses. And GM is vulnerable to unexpected regulations decreed by powerful government officials in Beijing. The path to financial nirvana remains neither straight nor certain. This is the story of how GM got into China, what it confronts, and how it tackled the formidable challenges presented by the Middle Kingdom—an arena of competition entirely different from America. The hard lessons learned will be instructive not just to companies making cars, but to any foreign company with aspirations to make it in China—an enormous market that will remain highly unsettled, and unsettling. Michael Dunne is founder and president of Dunne & Company. Dunne has worked in China and Southeast Asia since 1993 when he founded Automotive Resources Asia. From 2006-2009, Dunne led J. D. Power Asia-Pacific’s China operations while based in Shanghai.