Book Review: Building Detroit's Best in China

Last month, the US automaker General Motors sold a near-record 240,000 units, a 17 percent increase over August and 15 percent up year-on-year. In fact, General Motors is on track to sell more than 2 million cars in 2011 in China. Its September China sales were 37,000 units more than the carmaker sold in the United States.

GM in fact is a roaring success in China against all the odds, especially considering that the parent US company was nearly broken up in 2009 and came close to being nationalized by the Obama administration, surviving on huge loans. There were calls to break up the company, and in fact its Oldsmobile and Saturn divisions were closed. In the decades prior to the 2007-2008 global financial crisis, GM was considered a poster child for sclerotic American business, unable to get out of its own way.

“…No one inside of GM could have dreamt that in 2010 the company would sell one million cars – Chevys, Buicks and Cadillacs – to Chinese customers,” writes Michael J. Dunne in a new and timely book, American Wheels, Chinese Roads: The Story of General Motors in China. “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 an equally dangerous pitfall. For every promise kept, there is a promise broken. And there are shifting government rules at every turn.”

Dunne is uniquely placed to write this book. Born and raised in Detroit, he was a student intern in the GM headquarters in 1989. He was asked to devise a distribution strategy for China just in case some day China decided to invite in the manufacturing behemoth.

The anecdote he relates right at the start of the book is telling.

“GM’s own ‘culture’ was crystallized for me in one unforgettable moment when I was preparing a presentation for the higher-ups at the end of my eight-week tenure. My supervisor walked through the report and uttered only one piece of advice: ‘Whatever you do, just make sure to CYA.’”

CYA, of course, stands for 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.”

There are some 50 different companies selling cars in China, including all of the foreign manufacturers – Toyota, Honda, Volkswagen and Hyundai – that have been eating GM’s lunch for decades by building safe, attractive, reliable cars and selling them in the US. There are more companies, both domestic and foreign, selling cars in China than there are in any other country on earth. GM, however, had one powerful asset. While every manufacturer must find a joint venture partner and the joint venture partner is usually a major municipality, GM was lucky enough to partner with the city of Shanghai.

Every major city in China has an automaker partner, including Beijing, Guangzhou, Wuhan and Chongqing, each employing tens of thousands of people. One of the most famous was Beijing Jeep, a joint venture between then-American Motors and the city of Beijing that was turned into an entirely different kind of book by former Los Angeles Times correspondent Jim Mann, who wrote about how American executives completely misjudged not only the business environment but the capability of their partners to pirate Chrysler’s technology at virtually no cost.

American Wheels, Chinese Roads fortunately tells a more upbeat story. But there are plenty of cautionary bumps in GM’s road to success. The story began with an intensive battle between Ford Motor Co. and GM for the hand of Shanghai Automotive Industry Corp., better known as SAIC.

But GM China not only had to fight Ford. It had to fight its own executives in Detroit. When the Chinese pointed out that GM’s flagship new limousine, the Buick Century, needed a bigger back seat because unlike in the US important people rode in the back, the engineers in Detroit “grudgingly complied but felt genuinely irritated by such requests. ‘You mean we have to invest in engineering changes to a product that may, in fact, never be produced in China?” There was zero teamwork. Others in Detroit, Dunne writes, “voiced even greater skepticism: ‘Do they even have cars over there in China?’”

Indeed they do. There are now more cars produced and sold in China than anywhere on the earth, taking the title away from the United States after a century.

Then there was the problem with the Chinese themselves. After they had won the right to build cars in China, the GM officials summed up their problems in three steps. What the Chinese wanted to do was 1) Form joint ventures with leading global carmakers. 2) Absorb the foreign partners’ technology related to design, engineering and manufacturing. 3) Build cars under China’s own brand names.

That in a nutshell is what virtually every manufacturer of anything in China from golf clubs to airplanes has to face. And that really is what this book is about – the uneasy dance to build massive numbers of cars, make big profits, and keep Chinese hands off American technology,

This is a book replete with anecdotes by an author who is intimately familiar with both the car industry and China. It doesn’t make Detroit look very good. For instance, Shanghai GM, as the joint venture was known, decided to pattern its sales network from the successes of the Saturn band in the United States – to make the buying and service experience as friendly as possible – no price haggling, congratulations to the customers who bought the cars. It was a great success in China. Unfortunately, as GM struggled with bankruptcy in the United States, it killed the Saturn brand.

The figures today appear to show that GM has worked it out. It is selling vast numbers of cars and making vast profits. But, as Dunne says, “there remains certain fragility to GM’s success in China. Buick, Cadillac and Chevrolet must compete for market share against fifty other marques….and GM is vulnerable to unexpected regulations decreed by powerful government officials in Beijing. The path to financial nirvana remains neither straight nor certain.”