The marketer is rushing to capitalize on what will become the world's fourth-largest car market by year's end. China's new middle-class is hurrying to trade in bicycles for four wheels and the government is encouraging private car ownership, once strictly limited to the elite. If anything like current growth continues-sedan production doubled in the first half of this year-China will overtake the U.S. as the world's No. 1 car market by 2020. More than 1.8 million sedans will be produced in the country this year, up from 1.1 million last year, according to China's National Bureau of Statistics.
"Understandably, all the major players have raced to make the most of this unique opportunity," said Paul Brough, managing partner of KPMG's Financial Advisory Services practice in China, based in Hong Kong.
GM's shortlist has narrowed to Interpublic Group of Cos.' McCann-Erickson Worldwide and Foote, Cone & Belding; Havas' Arnold Worldwide Partners and two unnamed local agencies. GM will not disclose billings, but an agency executive involved in the pitch said GM wants to make Chevrolet a leading brand and estimated the winning agency's annual fee will be about $2 million.
Both are sidestepping potential conflicts. TBWA has a global relationship with Nissan Motor Corp. that is managed through G1 Worldwide, TBWA's joint-venture with Japanese agency Hakuhodo. And if Burnett prevails, Cadillac will be handled by Chemistri, a dedicated unit set up for GM by Publicis agencies in Detroit. Burnett already handles Fiat in China. GM's minority stake in Fiat mitigates the conflict issue, but using Chemistri provides separate agencies for competing brands.
The biggest car conflict in China is at Bates Advertising. GM chose Bates when it entered the Chinese market in 1997 with Buick through a joint venture with Shanghai Automotive Industry Corp.
Both Shanghai GM and Bates insist their relationship is strong, but industry executives speculate Buick may be up for review soon, following the recent acquisition of Bates' parent Cordiant Communications Group by WPP Group. WPP has a global supplier relationship with its biggest client Ford Motor Co., and Ford has made clear its displeasure with conflicts.
Unlike the rest of the world, where Bates is being absorbed into WPP's J. Walter Thompson or Red Cell networks, Bates is still operating as a separate network in Asia.
"Since Bates is kept as an independent agency network in Asia, our status will be exactly the same as before the WPP takeover," said Barry Leung, Bates' regional director, greater China, Shanghai. "So, there is no pressure to us to give up the Shanghai GM business."
Shanghai GM was among the first in China, but now more than two dozen car companies produce vehicles there. Ford Motor Co., for instance, partnered with Changan Automobile Group to launch a Fiesta-like sedan in January, and plans to roll out Ford's Mondeo later this year. DaimlerChrysler recently inked a deal to make luxury cars and trucks in China with Beijing Automotive Industry Holding Co., while Honda Motor Co. produces the Accord and Odyssey through a joint venture.
The market leader, with roughly one-third of China's passenger car market, is Shanghai Volkswagen, a joint venture between Volkswagen and GM's own partner, the Shanghai Automotive Industry Corp. that has grown into the largest foreign-invested enterprise in China in terms of sales.
Shanghai GM captured an 8.9% share of the car market last year with 111,623 unit sales, up from just 23,290 in 1999. Its most recent entry was the Buick Excelle last July.
While Buick caters to upwardly mobile professional Chinese, GM hopes to broaden its appeal with Cadillacs made by Shanghai GM and Chevrolets produced through another joint venture, Jinbei GM. Both will be in showrooms next year.
Sticker prices in China remain high by local standards-upward of $12,000 for a midsize family car. Soaring demand has coincided with a World Trade Organization agreement that calls for lower tariffs and allowing foreign players such as GM to offer car financing.
This month China's government passed a rule barring new entrants to China's auto industry. It also voted to maintain a 50% cap on foreign investment in Chinese car factories.
Even so, foreign carmakers are clamoring to step up production. Said Joseph Liu, executive director of Shanghai GM's marketing & distribution: "The market potential is vast."