The first Buick model off the line was just the beginning of General Motors long march into the Chinese market. A total of 23,000 cars rolled out of the factory in 1999. This year, Shanghai GM Buick aims to produce 50,000 cars.
It is interesting to review the long negotiations with the Chinese government to set up Shanghai GM Buick. The biggest issue was who would supply the car parts and how the parts would get from the factory to the Buick plant.
A car is made up of more than 30,000 parts. Parts manufacturers in China dont have the technological know-how to make all the necessary parts. Therefore, at the beginning, about half the necessary parts will be shipped to Shanghai from North America. These parts are made at GMs Tillsonburg. Ontario facility. The trains carry the parts over 3,000 miles to the Port of Vancouver. From Vancouver, the parts are shipped to Shanghai. All told, the door-to-door delivery time is 17 days. But there may be a 42-day delay between steel plates leaving the steel works in America and arriving in Shanghai. To prevent the long-distance shipping and delay, Shanghai GM Buick has asked Shanghai Baoshan steelworks to produce plates of similar quality.
Imported car parts are our biggest headache, says Jay Hunt, local suppliers are very responsive. To our surprise, however, the cost of localized production is much higher than buying from overseas. The reason is that although labor costs are low in China, wages comprise only 20% of the cost of producing car parts. Small-scale production in China makes production costs very high. The deputy general manager, Laurence Zahner said, Only if the price of domestic parts drops 30% shall we be able to qualify for the international market.
Thankfully, a solution has appeared. Foreign car parts makers are coming to the Yangtse River Delta to set up joint ventures. Shanghai GM Buick will depend on those parts makers for car parts. Perhaps the Buick plant will not worry about the agreement with the Chinese partner any longer. The agreement says that in the first year of production, the Buick plant must have 42% of locally made parts, and in the second year, the locally made parts rise to 60%, and in the third year, 80%.
1. What was the biggest issue in the negotiation between the Chinese government and General Motors?
A) Annual production of cars.
B) The location of Shanghai GM Buick.
C) Car parts and their shipment.
D) The price of domestic car parts.
2. How many car parts is a car made up of?
A) 23,000
B) 30,000
C) 50,000
D) 62,000
3. Who was the first supplier of the car parts to Shanghai GM Buick?
A) Baosteel steelworks.
B) Joint ventures in China.
C) GMs Tillsonburg.
D) The Buick plant in the Yangtse River Delta.
4. How does Shanghai GM Buick feel about the agreement on localization with Chinese partner?
A) Disappointed.
B) Hesitated.
C) Unhappy.
D) Confident.
5. With foreign car parts makers coming to the Yangtse River Delta, how does Shanghai GM Buick feel about the localized production of car parts?
A) The production cost is too high.
B) To carry out the agreement on localized production is impossible.
C) The quality of localized car parts must be improved.
D) The localization agreement can be carried out without any problem.
KEY: CBCAD