GM plans to buy more auto supplies in Asia

GM plans to buy more auto supplies in Asia

Joseph Szczesny, Agence France-Presse, Detroit, Michigan

General Motors Corp. is planning to purchase more material in
Asia and trim capacity in North America as it struggles to
contain the huge financial losses in its basic automotive
business.

The plan includes increasing its purchases from suppliers in
India from roughly 150 million dollars currently to more than
US$1 billion by the end of 2008, GM spokesman Tom Wickham said in
an interview.

"Remember this is a projection," he cautioned, adding that GM
may not be able to find sufficient suppliers to meet that demand.

The need to cut supply costs has been heightened by a sharp
rise in steel and oil prices and steady losses in the company's
North American business unit.

GM buys roughly $85 billion of automotive components, steel
and other material to feed its automotive operations every year.

It hopes to reduce those costs by buying more components from
suppliers operating from Eastern Europe, India, China and other
parts of Asia where costs as significantly lower than in North
America or Western Europe.

Even parts suppliers in Mexico have lost their competitive
edge, John Devine, GM's chief financial officer, said during a
recent conference call with outside analysts.

"Five years ago, you would have said you wanted to be Mexico.
Mexico is still a terrific place to assemble vehicles. But the
business has changed. The place you really need to be is Asia,"
Devine said.

A recent study by the McKinsey Quarterly estimated that
carmakers could cut their annual bill for auto parts by 25
percent by sourcing more components to China and India.

"Shifting to auto parts suppliers in China and India won't be
easy and won't happen overnight," the report said. "Sourcing car
parts isn't as simple as buying shirts or toys. Car models are
more complex with a lifespan of five to seven years so
manufacturers must develop long-term relationships with suppliers
and enter into contracts that are difficult and expensive to
unravel."

The largest drawbacks are the cost and distance of shipping,
the report said.

Governments in both China and India, though, are willing to
help in the transition and the local demand for auto parts is
growing in both countries.

The Chinese government has identified the auto parts as a
sector one of the sectors it plans to expand over the next
decade. Its goal is to export 10 percent of the world's $120
billion automobiles and auto parts by 2015, according Global
Sources, a Hong Kong-based trade publication.

Both Devine and Richard Wagoner, GM's chief executive officer,
said Asian markets remain critical to the company's future as it
struggles to return its core business in North America to
profitability.

GM's Korean affiliate, GM Daewoo Auto and Technology Co., is
expanding its role in developing new products and recruiting
suppliers.

"GM Daewoo has rapidly become a valuable contributor to the GM
family, particularly with its growing role in GM product programs
in the Asia Pacific region and around the world," Wagoner said in
a recent conference call.

The region is also shaping up to be a critical area for sales.

Devine said it's quite possible that total vehicle sales in
China will surpass sales in Japan this year, making it the second
largest market in the world.

GM's market share in China rose to 11.4 percent in the second
quarter of 2005, up from 9.8 percent in the year-ago period.

"Our performance in China continues to be encouraging,
especially considering our modest presence there just a few years
ago," Wagoner said. "Going forward, we intend to capitalize on
our momentum in China and take full advantage of the
opportunities presented by this large and rapidly growing market.
With the roll out of additional new vehicles in the second half
of the year and the strength of our current lineup, we anticipate
double-digit sales growth to continue in the second half of
2005."