07/28/2015 14h49

GM Makes $5 Billion Chevrolet Bet to Expand in Emerging Markets

Bloomberg

General Motors Co. is investing $5 billion to expand its Chevrolet lineup to gain market share and boost profits in emerging markets including Brazil, China, India and Mexico.

The project involves developing cars with Chinese partner SAIC and replacing many of GM’s existing subcompacts and compacts that are sold in emerging markets starting in 2019, President Dan Ammann said. The two companies expect to sell as many as 2 million vehicles a year through 2030, GM said.

GM’s strategy reflects a bet on global growth patterns and a new approach to the Chevrolet brand. Instead of offering a cornucopia of small-car models created by engineers in their own regional markets, GM will focus on one family of cars that share similar parts and sell worldwide, helping improve margins. Ford Motor Co. is taking a similar approach.

“It’s our view that over the next 15 to 20 years that majority of growth will take place outside mature markets and in these growth markets,” Ammann said. “It’s all about us making significant investment in growth of these markets.”

GM projects emerging markets to account for 55 percent of sales growth through 2030. China will generate 33 percent and mature markets will provide just 12 percent of additional sales.

While GM re-emphasizes an existing focus on places such as China and Mexico, it has pulled back in Thailand, Indonesia and Russia. The company has deemed those markets as too difficult to make a strong return on the investment or, as in the case of Russia, too risky.
Russia Doubted

“We wouldn’t have made the decision we made in Russia if we saw a compelling near-term opportunity,” Ammann said.

Replacing current GM models with cars that are engineered using common parts and architectures is part of the company’s long-term plan to lower costs by taking advantage of its 10 million vehicles’ worth of annual sales volume.

The big savings come from building more cars using the same engines, transmission and steel framework that underpins a car. GM estimated in October that it gets about 75 percent of global sales volume from 14 so-called core architectures. By 2020, GM wants to get 99 percent of its sales from 11 of those basic structures, and consolidate even more by 2025.

By reducing costs, GM can start to offer buyers in emerging markets more safety features, fuel-saving technologies and creature comforts such as Internet connectivity, Ammann said.