GM Shanghai Cadillac Plant Opens as China Hit by Lapse in Luxury

GM expects further local demand for cars despite the country’s economic slowdown.

SHANGHAI— General Motors Co. on Thursday opened a $1.2 billion plant in Shanghai to build premium-brand Cadillac cars targeting a luxury market that has been pressured by China’s economic slowdown.

The facility, operated by U.S.-based GM and its Chinese partner SAIC Motor Corp., will be able to produce 160,000 cars a year.

“We do firmly believe that there is strong potential for luxury [cars] in China,” said Matt Tsien, president of GM China. The company projects China’s luxury-car market will have annual sales of 3.5 million units in 2020, accounting for more than a 10% share of the country’s overall auto market, he said.

“Local production will enable us to satisfy growing demand for luxury vehicles through the introduction of more Cadillac models built in and for China,” said Mr. Tsien.

GM sold about 80,000 Cadillacs last year in China, taking a roughly 4.2% share of the luxury segment, the company said.

The plant’s opening comes at a time when growth in China’s auto market, the world’s largest, has slowed amid a cooling domestic economy. Sales of cars rose 7.3% last year to 21.1 million from a year earlier, compared with a 10% rise in 2014 and a 16% gain in 2013, according to the government-backed China Association of Automobile Manufacturers.

Luxury car makers, like suppliers of high-end watches and upscale jewelry, have been feeling the pinch from the economic doldrums. In addition, they have been hit by China’s anticorruption campaign, which discourages gift-giving and extravagant spending by public servants.

Luxury-brand car sales rose just 1% in the first 11 months of 2015, compared with a 21% rise in the full year of 2014 and more-booming double-digit percentage growth in prior years, according to Ways Consulting, a Chinese research firm focused on the local automotive industry.

Cadillac delivered 17% more cars to Chinese consumers in 2015 than in the previous year, Mr. Tsien said. “The moderation of the economy is obviously part of the landscape. We continue to believe very strongly that over the mid- to long-term China still represents tremendous growth potential,” he said.

Despite slower sales volumes, competition has intensified in China’s luxury car market, which has been dominated by Germany’s triumvirate— Audi AG, BMW AG and Daimler AG’s Mercedes-Benz. Volvo Car Corp., Nissan Motor Co.’s Infiniti and Tata Motors Ltd.’s Jaguar Land Rover have all unveiled ambitious plans to expand their market shares.

“Compared to its major rivals, Cadillac has slowly been refreshing its product lineups,” said Zhang Shaohua, an analyst at Ways Consulting. In particular, Cadillac is missing out on China’s crossover sport-utility-vehicle boom. “To Chinese consumers, its SRX crossover is out of fashion,” said Mr. Zhang.
“We still have opportunities in certain segments that we don’t participate strongly,” said GM’s Mr. Tsien. “Products like the CT6 will give us an opportunity to continue to expand our customer base and continue to increase share.”

Cadillac currently sells only five models in China. This month, it will introduce the CT6 luxury sedan, and later this year it will launch the XT5 crossover to replace the SRX. The newly opened Shanghai plant will also produce a plug-in hybrid version of the CT6 sedan to appeal to Chinese consumers who are motivated by the government to purchase alternative-fuel vehicles.

Further challenging Cadillac is a lower degree of brand awareness in the country’s central and western regions. Luxury-brand car makers have been shifting focus from large cities such as Beijing and Shanghai to these more-rural areas.

“When it comes to luxury car brands, ABB will always first come into people’s mind. To lure consumers, I have to increase discounts,” said Liu Yang, a Cadillac dealer in Wuhan, the capital of the central Hubei province. Audi, BMW and Mercedes-Benz are commonly referred to as ABB in Chinese automotive circles.

Mr. Liu said his customers who buy a Cadillac ATS sedan would get a 40,000 yuan ($6,000) discount off the sticker price, which starts at 288,800 yuan. “GM should beef up marketing, putting Cadillac ads at every corner of the city from restaurants, cinemas to shopping malls,” he said.


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