LEAKED: GM Sees Overcapacity Fiasco in China, Hopes Americans Will Buy Lots of Chinese-Made Buicks

Wolf Richter wolfstreet.com, www.amazon.com/author/wolfrichter
“We do not comment on future product speculation,” a Buick spokesman said, refusing to confirm the leaks, but didn’t deny them either.
GM sold 919,582 Buicks in China in 2014, four times as many as it sold in the US! GM manufactures in China nearly all vehicles it sells there. About half of GM’s earnings are generated in China. After having been bailed out of bankruptcy by US taxpayers to keep the manufacturing base in the US, GM bet big on China.
In July, GM announced that it would invest an additional $5 billion in China to develop a new family of Chevrolet vehicles with its Chinese partner SAIC. All global automakers have invested billions in China, year after year, to build new plants, add capacity, and increase production. More new plants are coming. More capacity is being added. It all worked out because automakers sold these vehicles in China as fast as they could make them.
Until this year. But now supply and capacity are still rising. Demand has started to fall. Inventories are piling up. A vicious price war has broken out. And the bane of the auto industry, overcapacity, is suddenly looming ominously above them all.
Overcapacity tore up the industry in the US. It tore up the industry in the EU. It’s a deadly disease for automakers. It led to bankruptcies and bailouts. And now it’s spreading in China.
But there is a solution, apparently: exporting China-made vehicles to the US.
A few small-scale efforts have gone nowhere. America is a tough market. The best companies fight it out on a daily basis and are being taught lessons the hard way by finicky consumers.
Volvo, owned by Zhejiang Geely Holding, is starting to export its China-made S60 Inscription to the US this summer. It’s the long-wheelbase version of the Swedish-made S60 sedan. This will be the first mass-produced car from China on US streets. Not exactly a tsunami.
But now GM is reportedly jumping into the game in a big way.
On Monday, the first leak appeared, and at a very inconvenient time for GM, currently in contract negotiations with the UAW. Automotive News reported that GM is planning to sell its Chinese-built compact crossover, the Buick Envision, in the US.
“It would fit perfectly in the Buick lineup at a time when crossover sales are growing fast,” Jack Nerad, executive market analyst at Kelley Blue Book, told Automotive News. “I’m sure a lot of Buick dealers wish they had it today.”
Crossovers are hot in China, unlike cars, whose sales volumes are plunging. The Envision, built by GM’s joint venture Shanghai GM, arrived in Chinese showrooms last fall. And already, over 57,000 were sold during the first half this year. According to Buick spokesman Nick Richards, it has been “extremely well-received.”
But China would remain by far the largest market for it. Automotive News:

Both IHS and LMC Automotive forecast a U.S. launch of the Envision sometime in the second half of 2016, with annual volume forecasts from the mid-20,000s to the high 30,000s. Their forecasts for annual Envision sales in China range from 140,000 to 170,000 through 2018.

And US consumers would presumably flock to buy them:

A decade ago, the idea of China-made vehicles in U.S. showrooms might have turned off American buyers. But that’s far less likely today, IHS analyst Stephanie Brinley says. In recent years, GM and other global automakers have built modern assembly plants in China. And Americans are accustomed to their iPhones and other high-end consumer goods being made there.
“For the U.S. consumer experience, there is likely to be little difference between a Buick built at GM’s Orion Assembly plant [near Detroit] or in Shanghai,” Brinley says.

That was on Monday. On Tuesday, Reuters added fuel to the fire when it reported, based on two “sources familiar” with GM’s plans, that “most Buick vehicles sold in the United States after 2016 could be imported from China and Europe….”
According to the sources, “who did not want to be identified because their companies work with GM”:

• Production of the compact Verano sedan will likely be shifted from Michigan to China in late 2016.
• Production of the mid-size Regal sedan will likely be shifted from Canada to either China or Europe in 2017.
• Buick will import the compact Cascada convertible from Europe early next year.
• And production of the subcompact Encore crossover will be shifted from Korea to China.

In the future Buick lineup, only two models would be made in North America: the replacements for the mid-size LaCrosse sedan and the large Enclave crossover.
The automotive component industry has already centered itself in China after the Financial Crisis in a whirlwind of bankruptcies and reorganizations that led to hundreds of thousands of job losses in the US. Today, Chinese-made components are used by all automakers that sell vehicles in the US.
And Chinese-made Buicks, Chevrolets, Fords, Toyotas, and BMWs are simply the next step. With the rosy prospects of overcapacity tearing up the industry in China, exports to the US are a natural solution.
When GM jumps into it in a big way, other automakers will follow. This would be the beginning of the long-awaited and much rumored tsunami of Chinese-made cars on US streets. American consumers will get used to them. At first, they were leery of Mexican-made cars; today, they aren’t even asking anymore.
But hope for the vaunted “Manufacturing Renaissance” in the US takes another hit, this time from China’s blossoming overcapacity fiasco.
China’s auto market had been the single most important element in the convoluted recovery of GM and other global automakers. But the market has been getting battered this year. And since the yuan devaluation, the elements are coagulating into a toxic mix for GM. Read… China Mess, Yuan Devaluation Spread to the US