The REAL Reason for GM's China Success

A recent article in the New York Times detailed General Motors’ great success in China, contrasting it with the company’s free-fall in the United States.

As was pointed out, GM’s ability to become the number-one player in the world’s fastest growing car market is due to many reasons: non-union workers, low labor costs, and strong brand equity being among them.

Still, when making comparisons between GM’s China achievements and GM’s US failures, a key component is often missed.

The precipitous decline of GM in the U.S. was driven not only by the obvious reasons we all know about, but something even more ubiquitous.

For decades, General Motors’ cars in the U.S. were sold through an exclusive network of General Motors’ dealers. The dealers only represented General Motors’ brands.

Then, beginning in the 1970’s, General Motors – and the other U.S. manufacturers- began to allow their dealers to represent other car companies.

This marked a seminal shift in the U.S. auto industry. Suddenly, GM’s customers (their dealers) were no longer the loyal, dedicated ones they had been in the past.

Increasingly, if a buyer wanted a new vehicle, they could go to a dealership that might have 5 or 10 or 30 different brands to choose from.

Today, the biggest car dealer in America is AutoNation. Ever been to an AutoNation dealership? If you are a prospective buyer, it is awesome! You have great choice and options.

Over time, GM’s US vehicles, which are incredibly expensive to develop, began to be viewed not as cutting-edge automotive innovations managed through an exclusive dealer network; but, more and more, like dish soap sold at Wal-Mart.

GM’s products in America have become little more than commodities: sold in the same fashion as their competitors through distributors with little or no real stake in those same products.

Conversely, in China, GM cars are sold like they used to be in the U.S.: through an exclusive network of GM-only dealers.

The lesson from GM might very well be that how an innovation is sold is much more important than almost anything else.