August 9, 2005
G.M. Thrives in China With Small, Thrifty Vans
BY KEITH BRADSHER
LIUZHOU, China - In this obscure corner of southern China, General Motors
seems to have hit on a hot new formula: $5,000 minivans that get 43 miles to
the gallon in city driving. That combination of advantages has captivated
Chinese buyers, propelling G.M. into the leading spot in this nascent car
Compact and utilitarian, these vehicles, called Wuling Sunshine minivans,
hardly fit the big-is-better image of G.M., known in the United States for
producing some of the largest gas guzzlers on the market, like Hummers.
The minivans, which G.M. builds in a joint venture with a Chinese partner,
have a quarter the horsepower of American minivans, weak acceleration and a
top speed of 81 miles an hour. The seats are only a third the thickness of
seats in Western models but look plush compared with some Chinese cars.
Their development was led by an American, Philip F. Murtaugh, a native of
Ohio and a maverick executive who was willing to zig while the rest of G.M.
was zagging. Mr. Murtaugh was able to create in China the kind of innovative
environment that G.M. has struggled for decades to achieve in its American
operations. But whether G.M. can duplicate elsewhere its achievements in
China or even keep its pace here is unclear.
In what may be a telling sign of the corporate culture at G.M., Mr.
Murtaugh's success in China led not to promotion but to his departure from
the company. G.M. declined to discuss personnel matters, but both it and Mr.
Murtaugh said he resigned and was not dismissed.
A soft-spoken man in a company known for autocratic leaders, Mr. Murtaugh
ran the China operations for more than nine years from his base in Shanghai,
repeatedly making some of the best calls in the industry. Now he finds
himself unemployed and living in a small community in rural Kentucky.
His resignation in March, at the age of 49, came shortly after senior
company executives reorganized management to give more power to Detroit
executives to oversee design, engineering and various manufacturing
disciplines all over the world, including operations in China.
The shift was supposed to allow greater coordination between the growing
Chinese operations and the rest of G.M.'s businesses. Other G.M. regional
executives had already been more under Detroit's control and did not leave
For years, G.M. has linked its fortunes in the United States to the sale of
big vehicles, like Chevrolet Suburbans, only to find oil prices soaring and
many Americans nervous about paying more than $50 for a tank of gas.
But here in China, Mr. Murtaugh's G.M. was the only multinational automaker
that spotted the potential in the late 1990's for building lots of small,
inexpensive, fuel-sipping cars, minivans and pickup trucks.
"It is impressive, and it is strategically very smart," said Michael Dunne,
president of Automotive Resources Asia, a consulting firm based in Beijing
The utilitarian minivans and pickups are mainly purchased in China by
small-business owners in towns and smaller cities, who drive them both to
carry supplies for their businesses and to transport their families.
Gasoline in China is slightly cheaper than in the United States, as the
government is gradually passing on price increases to consumers.
The minivans have been a big hit, helping G.M. sell more than 170,000 very
small vehicles - automobile types not available in the United States - and
to pass Volkswagen this year in sales in a market that VW has dominated for
two decades. They have helped turn China into G.M.'s biggest center of
automotive profit - in contrast to losses in manufacturing operations in the
United States - and its second-largest market in terms of the number of
vehicles sold, after the United States.
In the important market for larger cars, those not made by the Wuling joint
venture, Honda, Toyota and Hyundai are gaining on Volkswagen and, to a
lesser extent, G.M.
Such slippage is a familiar experience for G.M. at home. It has repeatedly
failed to halt a slide in its domestic market share that began in the
1960's, and has faced the humiliation of seeing its bonds downgraded to junk
status this spring. G.M.'s success in China shows that the company, the
world's largest automaker, can still summon the energy and innovation
occasionally to take command of a big market.
The Chinese government has also encouraged a shift toward more efficient
models through stringent fuel-economy regulations, even as Congress has
opted for more subsidies for oil production and a limit on hybrid car
G.M.'s reward came in the first half of this year, when demand for the
utilitarian vehicle market in China soared in response to steep gasoline
prices and rising prosperity among peasants and small-business owners.
G.M.'s sales of spartan minivans and pickups and of very small cars have
climbed faster than those of its rivals, to 172,368 in the first half of
this year, up 48.7 percent from the period a year earlier.
Its Asian and Pacific division - just 5 percent of worldwide sales - is
increasingly dominated by the fortunes of its China business. The division
earned $176 million in the second quarter, even as overall automotive
operations lost $948 million amid heavy losses in North America.
The factory here now runs day and night, six days a week. "When the
employees stop for lunch, the maintenance people run in," said Yao Zuo Ping,
the chief of manufacturing.
Mr. Murtaugh played a central role in 1996 in setting up the company's main
operation in China, a 50-50 joint venture with the Shanghai Automotive
Industry Corporation, or S.A.I.C. Instead of following the usual G.M. career
track of bouncing through assignments around the world every couple of
years, he stayed on to run the operation for nearly a decade.
In the late 90's, he noticed that millions of small-business owners and
affluent peasants were not yet prosperous enough to afford the latest
Western models but were saving enough to acquire more frugal vehicles
selling for less than $5,000.
"Essentially, it is his baby," said Stephen Small, the joint venture's G.M.-appointed
chief financial officer.
Mr. Murtaugh never learned to speak Chinese, but he was instrumental in
setting up the Liuzhou joint venture, which is 34 percent owned by G.M.,
50.1 percent by S.A.I.C. and the rest by the Liuzhou Wuling Automotive
Company. His personal skills and ability to explain the latest ways to run a
factory, often borrowed from Japanese automakers, made a deep impression
with executives here, as did his regular visits.
"Murtaugh himself was actually paying a lot of attention to our facility
here," said Shen Yang, the president of the joint venture and a leading
executive at the factory for more than a decade before G.M. invested here.
To build the cars, G.M. helped gut and rebuild a former tractor factory in
ways that could become a model for automobile production in China for years
Long white halls erected in 1958 during Mao's Great Leap Forward still stand
here, the paint peeling in places, the wood window frames warped and the
windowpanes cracked and broken. Inside, however, is a factory that combines
old and new management techniques. Small, plastic racks of parts delivered
several times or more a day have replaced large bins of parts delivered to
the assembly line in big shipments every few days. This way, the factory can
keep low inventories and order quick design changes, if necessary, from
The assembly process has only one robot, for sealing windshields, relying
mostly on workers earning $60 a month, above average for this impoverished
region. That comes after G.M.'s experience in Shanghai, where it installed
four dozen robots for its first assembly line only to find them much
costlier and less flexible than people; G.M.'s second assembly line there
was built with only four robots.
"Low cost doesn't just mean low wages, it means low investment," Mr. Small
Worker safety in most Chinese factories is abysmal by Western standards. But
workers at the factory here wear safety glasses, and the equipment has
automatic cutoffs to prevent workers from losing fingers.
Mr. Murtaugh said in a telephone interview from his home, now in Cadiz, Ky.,
that he made safety suggestions at the start of his first visit to the
factory in 1999. "We got about 20 paces inside the stamping plant and I said
to Shen Yang, 'How many eye surgeries and finger amputations do you perform
every year?' "
Before the joint venture began to be set up in 1999, Wuling did not even
have procedures for handling workers' suggestions. Now, the workers are
given extensive information about the performance of their units and
encouraged to submit suggestions. The factory received 4,000 suggestions
from its 5,000 employees last year, and as many suggestions again in the
first five months of this year.
Zhou Libo, a 28-year-old worker who welds minivan underbodies and has worked
here for 10 years, said that until the last several years, "We made a lot of
parts that were not good quality and had to be thrown away."
Mr. Murtaugh's departure was widely seen within the automotive industry as
linked to moves by G.M. that limited his autonomy. Last summer, the company
transferred executives from Singapore to an office just down the street from
Mr. Murtaugh's in Shanghai, a shift that made closer supervision possible.
Mr. Shen, the president of the joint venture here, becomes visibly emotional
when he mentions Mr. Murtaugh's surprise departure.
"I have a very good relationship with Mr. Murtaugh, he is my friend, and
seeing him leave is very hard on me," Mr. Shen said, his voice catching
slightly. "He was both a teacher and a friend."
Mr. Murtaugh said that he was playing a little golf now, but found himself
with many idle hours.
"I'm looking for work," he said, and then joked, "do you have a deck that