Kevin e. wale
President, General Motors Group, China
2008-06-01, China International Business (CIB) www.cibmagazine.com.cn
By Mina Choi | From CIB June 2008 Print Edition
FACE TO FACE INTERVIEW
Kevin E. Wale
Position: President and Managing Director, General Motors China
Education: Melbourne University; additional studies at GMI (now Kettering University), Flint, MI
In His Pocket: Pen, Blackberry, ID badge
China is the world’s fastest-growing auto market and General Motors (GM) is, as of last year, the biggest-selling car manufacturer in China. All of which means that Kevin Wale, president and managing director of General Motors China, has quite possibly the most exciting job in the auto industry.
Wale, who started out at Holden, a GM unit in his native Australia, in 1975, quickly rose through the ranks and has held senior managerial positions in Australia, Europe, and Asia. After four years heading up the manufacturer’s Vauxhall Motors division in the UK and acting as vice president of European operations, he returned to Asia to take up GM’s top job in China in 2005 and has overseen the firm’s rapid growth in the country ever since. Last year, GM sold 1.03 million vehicles in China, across its diverse range of brands and joint ventures – a strong performance in marked contrast to North America, where sales fell 6.3%.
When did it become obvious to GM that China was going to be the main growth market for the auto industry?
Well, it became obvious to us in the late 1990s, simply because of the projection of the demographics and the economic situation. If you looked at the economic growth and the number of people who would come into the purchase acquisition stage, the numbers were massive. But we were surprised by the speed. In fact, the increase in market size between 1998 and 2007 was twice as much as we had projected. In 1998, we had projected 4 million units, and by 2007, we actually came in at 7.5 million.
How did you deal with this sudden increase in market demand?
Our organization was very flexible and we were able to quickly take advantage of the situation. And that’s what distinguished us from some of our competition. Because we had predicted that the market was going to grow, we had already done a lot of work in the areas that we wanted to focus on. So because we knew what we had to focus on, we were quicker in executing them.
How long has GM been in China?
Since before World War II. In those days, we actually had a very sizable share of the market. We were very successful, but of course we left soon after [the war]. And until the joint venture [with Shanghai Automotive Industry Corporation (SAIC)] was signed in 1997, we had a very minor import activity operation, primarily through our car parts operation. . . . To be honest, the modern story of GM China starts with the [50%-50%] joint venture in 1997.
Is China now GM’s most important market?
There’s no doubt that China is the most important growth market for General Motors because of the magnitude of the opportunity and the speed of growth.
GM’s sales in North America were down 6.3% year-on-year in 2007, yet in China sales were up 19%. Is GM’s performance now dependent on China?
GM is a globally focused organization and the North American market is down this year, but there are lots of other parts of the world that are doing very well. . . . More than 60% of our global sales are now outside the North American market. People don’t associate GM as an international auto company, but in fact we’ve been focused on global activities for a long time and we have a very wide global footprint, which is very useful when certain economies go down as they do: when the US is down, Latin America and Asia are up; and the same thing happened when Asia was down – North America was up.
Is your marketing strategy different in China?
Because of the disparity of income in China, what we employ is a multi-brand marketing strategy so that we target cars at different buyer segments. Cadillac, for instance, is targeted at very successful people so it’s a very aspirational car; and we have Buick which is targeted at a different group; and Chevrolet which is targeted at younger families, whereas products like Wuling tend to be very practical and have to demonstrate value for money. So by having different brands, you can direct different messages at different target customers. We don’t change the message as much city to city, but we do have different messages from brand to brand.
Chinese consumers are increasingly technology savvy. Do you factor this into your marketing strategy here?
The rapid spread of mobile phones and internet communications here means that we are using more internet marketing. We pay a lot of attention to communication and media management. Our products are being bought by an increasingly younger set of customers so there’s a lot more call for our products to be technologically related rather than comfort-related as they would be in the West, where our customers’ age profile [is] older. We have to cater to all needs in all markets. But we must pay attention to the fact that a large proportion of the emerging market is young, technically very advanced, and very global in its outlook.
A number of reports suggest that Chinese consumers have less brand loyalty than their counterparts in the US, Europe, and Japan. How then do you go about building a brand here?
I don’t think that’s true. If a person has bought only one car, it’s ridiculous to say that person has no brand loyalty, so you’ve got statistics and statistics and then lies. China’s car industry is in its infancy, so you have people who are trying different products as they start to understand what’s on the market. We have very good customer loyalty. We have people who are very satisfied with our products and they’ll come back. We satisfy our customers and we remind them that there’s a whole range of opportunity to grow within the brand. They can satisfy their affluence and curiosity by moving from a small car to an SUV. So we think there’s a lot of brand loyalty and it’ll be a very important part of our future marketing.
You unveiled a new hybrid model at the Beijing Auto Show in April. Yet sales of hybrid vehicles, such as the Toyota Prius, in China have been disappointing. Can hybrids succeed here?
I think with technology, you don’t get instantaneous change. We don’t think we’ll get a huge volume of sales because this is a more expensive technology. There aren’t serious incentives to encourage people to change yet. What we’ll see is an evolution towards more modern technology and we do think there will be much higher movement towards hybrids and electrification of cars. We do think these technological advances — like fuel cells and hydrogen-fueled cars — are on the horizon and individuals will move towards them once the government decides. Because if you want dramatic change, there needs to be some mechanism to encourage people to adopt the new technologies.
One feature of GM’s activities in China that differs from more developed auto markets is your strong sales of minivans. Why are they so popular in China?
Minivans serve multiple purposes because they can seat seven or eight people and are adaptable to commercial use and very utilitarian. In China, they are very important and last year we sold 550,000 of them. When we were looking at our research, we realized that the growth areas would be in the regions that were not necessarily on the east coast. Secondly, that the units needed to be a very practical combination of commercial and multiple-use modes of transportation. It’s been a terrific success for us and a win-win for everybody.
GM’s list of China joint ventures covers the entire supply chain. What’s the rationale behind this?
We think the thing that differentiates us from other players in the market is that we have made a concerted effort to build an integrated value chain over the different aspects of the automobile business. We start at the front-end with a very large engineering and development joint venture. We manufacture cars in five different locations. We try to maintain a strong supply network so that they can provide the parts. We’ve built a series of distribution networks so we can sell our different brands. We’re now at the stage of building a strong support network for people who own the cars. We’ve looked into financing activities so people can purchase cars more conveniently. We’re looking into telematics so people can get support for emergency services.
Is this consistent with what you’ve done all over the world?
It’s slightly different in China because the market is younger and we’re moving faster than we normally would. We’ve condensed 30 years of activities into 10 years. But a lot of what we’re doing in China is what we’ve learned from our history around the world. It’s difficult to do just one small portion of the car business successfully. It’s very dependent on the flows from one element to the next. And frankly, the reason we have been so successful when the market opened up in China is because we had the infrastructure in place. We had the local development technology, the supply network, and the local manufacturing base, so all we had to do was leverage them up at a quicker speed. When we started in 1997, the supplier network was nowhere as well-developed as it is today, so we take pride in giving the stimulus to build the world-class supplier network that China has [today].
Are the suppliers exclusive to you?
No. The economy of scale dictates that they need to supply other companies to compete. [But] we like to make sure that they look after us very well.
And you’re still adding to the supply chain?
Yes, every day there is a new opportunity depending on what stage the market has matured to. For instance, earlier today we were talking to people about extended warranty insurance, which exists everywhere else in the world. Now, is this the right time to introduce this [here] or is China not familiar enough with these products? There is no limit to the opportunity – it’s just a question of when is the right time, and which ones make most sense to introduce to the marketplace?
Are rising costs an issue in China?
Costs are increasing and have been increasing for some time. It’s a natural path for a growing economy. We manage the business effectively and we continue to improve the efficiency of the business. We do that by importing some of our best practices around the world and by spreading our fixed cost. China is still a very cost-effective market to operate in. There are always newer countries coming in as low-cost options, for instance a lot of countries in Southeast Asia such as Vietnam, Thailand, and Indonesia, and even Eastern Europe. But the difference with China is that it has a very large volume base and a more efficient fixed-cost base. It also has a large labor force, and quite effective labor costs.
Has the new labor law affected your operations here?
There are some implications on our business, but most of the rules are consistent with how we normally operate today. In China, regulations are changing at a very rapid pace because the economy is growing at a very rapid pace. We do want to have safer regulations, and better working conditions, and as long as it’s done in a proper way, with proper consultation, we think it’s the right thing to do.
You've been with GM since 1975. What sort of perspective does your 30-plus years of service give you?
In 30 years, GM has changed a lot. Probably the most interesting thing is that I grew from a person who started in a very small part of GM in Australia to working at every operation around the world, and in the meanwhile, seeing the world change into a very integrated global community.
Finally, do you have a projection for the next five years for GM in China?
No. One of the things in China you learn very early is that you never
lock yourself into a fixed number. And that is part of our strategy
– you need to be flexible. We expect the market to grow very strongly,
between 10-15% a year, and we’re very excited about our ability
to continue to grow our share of the market. We’re going to have
a significant growth in China over the next 10 years, and we’re
also going to have a significant growth in our people development. We’re
going to be hiring more and more talented Chinese. China has a key focus
on education and a large population so it will be producing more leading
intelligent minds. Wherever you are, you want to grow where people are
growing. These people will be developing future technology growth and
GM wants to be part of that.