General Motors faces dire prospects in mature markets like the United States and Europe, but what the company is doing in China bodes well for its future in the world's largest emerging market.

 

Thanks to vision and effective strategy, GM is making quick inroads into China's interior.

 

Inland China has huge potential demand for affordable cars, and GM is better positioned than other global players to capture the market there.

 

Detailed statistics are not available, but in 2008 auto sales in all coastal Chinese provinces declined. By contrast, strong sales growth was maintained in inland regions, says Yale Zhang, director for emerging markets at CSM Worldwide. 

 

Auto sales in Anhui, an inland province in east China, surged more than 60 percent, and even Sichuan, a southwest China province hit hard by a powerful earthquake last May, recorded a significant increase in auto sales.

 

But most global brands still focus their operations on major cities in coastal China. They are reluctant to venture farther afield and compete with domestic Chinese players such as Chery and Geely, which are traditionally strong in smaller cities and inland areas.

 

GM is different.

 

Its Buick brand still targets China's biggest cities. But GM has moved aggressively into mid-sized coastal cities and cities in inland regions with competitively priced Chevrolets.

 

GM has to date opened 162 franchised Chevrolet dealerships across China, of which 90 are in inland areas including remote western regions like Xinjiang and Tibet.

 

This is a smart strategy. As long as the price is attractive, Chevrolet has one big advantage over rival Chinese brands -- a much higher level of brand recognition.

 

So far, this strategy has worked well.

 

During the week-long Chinese New Year holiday, I noticed a high concentration of Chevrolet Lovas and Sparks clogging the streets of tier 3 cities such as Zhenjiang in Jiangsu province.

 

My observation is also supported by statistics.

 

Launched in 2006 with a starting price of 70,000 yuan ($10,200), the Lova has become one of the best selling subcompact models in China.

 

More than 100,000 Lovas were sold nationwide last year, up 25 percent from 2007, according to Automotive Resources Asia, a unit of J.D. Power and Associates.

 

Another Chevrolet model, the Spark small car, is also gaining ground against its look-alike, the Chery QQ, on the back of its brand strength.

 

In 2008, sales of the Spark, priced at 40,000 yuan ($5,840), also surged 25 percent. By contrast, sales of the QQ dropped 5 percent.

 

In addition to its strong brand and competitive pricing, GM's inland push has the strong backing of a low-cost production facility: SAIC-GM-Wuling Automobile Co. (SGMW) in the southwest China city of Liuzhou.

 

Labor costs in Liuzhou are at least 30 percent cheaper than coastal areas. The city also has a strong parts supply base and is well connected with the rest of China through highways.

 

SGMW, which currently builds the Spark, also produces more than 600,000 microvans a year, making it the nation's largest microvan manufacturer.

 

Armed with GM's technology and its own rich experience in inland markets, SGMW is poised to play an important role in propelling GM to rapid growth in the interior.

 

SGMW is also expected to get support from GM's Pan-Asia Technical Automotive Center in Shanghai to build a 50,000 yuan-60,000 yuan ($7,300-$8,800) compact car based on the Buick Excelle platform.

 

What a good combination of high technology and low cost.

 

In an interview in January, Kevin Wale, president of GM China, told Automotive News China that his company's shift into new China markets would be powered by adding dealerships in smaller inland cities.

 

He believes that the Chevrolet brand is uniquely placed to be successful in China due to its affordability and young, energetic styling.

 

To be sure, GM's strategy of tapping China's heartland with low-priced models is not risk free.

 

Low prices mean narrow margins. It also requires huge upfront investment in building dealer networks that can sell to a large number of cities scattered across a vast region.

 

But given the tremendous potential of China's interior market, the strategy will pay off in the long run. GM should stick to it.