General Motors Co., the largest carmaker in the U.S., is shifting its center of gravity to China, where it sells more cars and now invests more money.

GM’s announcement at the Shanghai auto show this month that it is spending $11 billion by 2016 on new plants, products and people in China demonstrates a change in priorities. GM is investing $1.5 billion in North America this year, where it has a more modest factory footprint.

GM’s focus on China parallels the strategy Toyota Motor Corp. employed in the last century, when the Japanese automaker poured investment in the U.S. market, where it saw its greatest growth potential. Now, Detroit-based GM is taking the lead in the world’s largest auto market by building four new assembly plants in China to boost its factory capacity to 5 million vehicles annually, twice what it sold in the U.S. last year.

“This is what the Japanese did in the ‘70s when the U.S. became their most important market,” said Rebecca Lindland, an automotive consultant with Rebel Three Media & Consultants in Cos Cob, Connecticut. “What GM is doing is really smart because it’s proactively investing in a market that, for the foreseeable future, is going to be the world’s largest.”

GM rose to a 52-week high of $30.71 last week. It fell 0.7 percent Friday to $30.50. It has gained 5.8 percent so far this year compared with an 11 percent increase in the Standard & Poor’s 500 Index. The company will announce quarterly results later this week.

GM already is the No. 1 automaker in China, with 15.1 percent of the market in the first quarter on growing sales of Buick and Chevrolet models and a thriving commercial-vehicle joint venture. It’s rolling out 17 models there this year, including a renewed push to sell its Cadillac luxury line to the increasingly affluent Chinese. And it’s expanding its Chinese dealer network to 5,100, from 3,800.

“China has become the center stage in the battle for dominance of the 21st century global auto industry and GM is investing to secure its leadership position,” said Bill Russo, president of auto consultant Synergistics Ltd. in Shanghai. “GM is investing to ensure that is can differentiate itself from the crowd by having a full product shelf and a dealer network.”

China is central to Chief Executive Officer Dan Akerson’s plan to diversify GM’s sources of profits around the planet. While North America remains GM’s biggest profit center, China has emerged as the leader in other key measures ― sales, output and investment. Analysts say it’s just a matter of time before China becomes GM’s biggest profit center.

“It wouldn’t be difficult to see this flip sometime between now and 2020 for sure,” Jeff Schuster, an analyst with LMC Automotive, said of China’s potential to become GM’s profit leader.

GM’s factory build-up will give it 17 assembly plants in China, more than the 12 it has in the U.S. GM’s dealer count in China will also surpass the 4,343 showrooms it has in its home market. GM has been selling more vehicles in China since 2010.
 

(Bloomberg)