China’s Great Wall Motor cushions Thailand from impact of GM pullout
General Motors is withdrawing from Thailand as part of a significant downsizing of its Asia-Pacific operations, but Chinese player Great Wall Motor’s arrival is expected to cushion the blow to the Southeast Asian country.
Poor sales had reduced the earnings from operations in Thailand and Oceania to levels which made it difficult for the Detroit automaker to justify retaining them. GM will now shift its regional focus to a narrower subset of markets, including China, which accounts for more than 40 per cent of the global revenue volume, and South Korea even as the COVID-19 pandemic affects consumer and business operations there.
On February 16, the company said it would sell its manufacturing facilities in Thailand’s Rayong Province to Great Wall Motor and suspend all sales in Thailand this year. By next year, it will also scrap the iconic Holden brand as part of an Australian and New Zealand pullout. This follows the selling of an Indian plant to Great Wall which was announced last month.
The pullout will leave China and South Korea as the sole Asian production bases for GM.
GM Chairman and CEO Mary Barra said, “We are restructuring our international operations, focusing on markets where we have the right strategies to generate robust returns”.
The company is “prioritising global investments that will drive growth in the future of mobility, particularly in the areas of electric vehicles and autonomous vehicles,” she said.
The acquisition of the factory will make state-run Great Wall the latest Chinese automaker to establish a foothold in Southeast Asia. SAIC Motor has operations in Thailand, Indonesia and India, and the owner of Geely Automobile Holdings, Zhejiang Geely Holding Group, has a stake in the Malaysian national brand Proton.
In Thailand, GM manufactured around 50,000 vehicles a year, including Chevrolet pickup trucks, and shipped them to markets such as the Philippines and Indonesia. Sales have, however, disappointed.
Given “low plant utilisation and forecast volumes” at the Rayong plants, GM concluded that it is “unsustainable” to maintain production there, the automaker stated and added, Chevrolet, will not be competitive in Thailand without local production.
GM hires 1,500 full-time employees throughout Bangkok and Rayong. The vast majority of those jobs “will be separated,” GM Thailand said.
Last year in Thailand, Chevrolet sold slightly over 15,000 vehicles, when overall new-auto purchases there reached 1 million vehicles. It lagged well behind rivals like Toyota Motor, Honda Motor and Isuzu Motors.
Foreign exchange rates did not assist matters. Since 2015, the Thai baht has generally strengthened, now hovering around nearly a six-year high against the dollar, amid strong exports and significant inflows of foreign tourists. The strong currency renders exporting Thai-built autos abroad less profitable, which has also eaten into margins for other global auto-making players.
The purchase of the Rayong plant would allow Great Wall Motor, which has done most of its business in China, greater exposure to the key markets of the Association of Southeast Asian Nations.
The Chinese automaker would “expand through the entire ASEAN region with Thailand as the core, and export its products to other ASEAN countries as well as Australia,” said Global Strategy Vice President, Liu Xiangshang.
Great Wall, which saw a 1 per cent growth in sales to 1.06 million units in 2019, plans to generate 30-40 per cent of sales outside China in four years.
The acquisition of the Rayong facility will mean the factory will not sit idle, which is excellent news for Thailand, the largest auto production hub in Southeast Asia and home to hundreds of materials and parts manufacturers.
“We will also promote the growth of the local supply chain, R&D and related sectors, plus contribute further to the exchequer of the local governments of Rayong and Thailand,” Liu said.
The automotive industry in Thailand will not suffer significantly from GM’s departure, said Surapong Paisitpatanapong, spokesman for the automotive industry group at the Federation of Thai Industries. “GM has produced a limited number of cars in Rayong with low sales and exports,” English language local news the Bangkok Post quoted him as saying.
Since the 2000s, global automakers have stepped-up investments in fast-growing emerging Asian markets. Jumping on the bandwagon, GM built vehicles for sale across the region in Thailand, Indonesia and India. But local and Japanese rivals offered extensive lineups of wallet-friendly compacts, so GM was unable to gain as substantial a foothold as it had expected.
In 2019, outside China, its Asia-Pacific sales totalled under 200,000 units accounting for less than 3 per cent of its global sales.
In recent years, Australia-based Holden, which was established as a saddle maker in 1856 and joined the GM group in the 1930s, has suffered from decreasing demand. According to Australia’s Federal Chamber of Automotive Industries, sales dropped 29 per cent in 2019 to around 43,000 vehicles with a market share of 4.1 per cent.
GM’s Asian overhaul will mean greater reliance on China, where both automobile sales as a whole and GM’s share of them have substantially reduced. The company, which was slower than rivals to exploit the popularity of sport utility vehicles, saw Chinese sales fell by 15 per cent on the year in 2019, a bigger decline than the broader markets 8 per cent decrease.
Adding to the uncertainty is the COVID-19 epidemic. Several of GM’s 15 manufacturing bases in China, including a joint-venture factory in Wuhan, the epicentre of the outbreak, remain closed. In 2020, an extended suspension will disrupt efforts to roll out a wide lineup of new electrics and other models.