SHANGHAI -- General Motors will know this spring if its multi-brand strategy is working in China.

 

In March, Chevrolet will start selling the Cruze, its first entry in the compact segment.  The Cruze will compete with the Buick Excelle, another compact that accounts for about two-thirds of Buick's sales.

 

But GM is willing to risk cannibalizing Excelle sales to boost the Chevrolet brand in China. It is counting on Chevrolet to drive most of its growth in China, mainly by appealing to younger, less affluent customers.

 

"We want to build off Buick's success without taking away from the brand's prestige," says Steve Betz, general director of the brand in China. "Our goal is to sell as many Chevys as Buicks by 2012 at the latest."

 

Chevrolet was a relatively late arrival in China. In the 1930s, Buicks made up one-sixth of the cars on Chinese roads. When GM returned to post-revolutionary China in 1998, its partner, Shanghai Automotive Industry Corp., requested the brand because of its earlier prestige.

 

When Chevrolet first appeared in China in 2005, it started with  small vehicles.

 

"Initially we did not play in the same segments as Buick because not enough marketing had been done to differentiate the brands," explains Betz.

 

The main difference between Chevrolet and Buick is price. The mid-sized Chevrolet Epica, for example, sells for 138,000 to 163,000 yuan ($20,186-$23,843), far below the 210,000 yuan ($30,717) starting price of the Buick LaCrosse in the same segment.

 

This year, Chevrolet is growing, while Buick is lagging. In the first 11 months of this year, Chevrolet sold 188,696 vehicles in China, up 17 percent from the same period of a year ago, according to figures supplied by J.D. Power and Associates. Buick, meanwhile, sold 250,995 cars, a decrease of 14 percent on the same period in 2007.

 

An examination of Chevrolet's snappier advertising, however, hints at marketing strategies based on generational differences.

 

"Buick is targeting men in the prime of their careers," says Betz. "Chevrolet is appealing to the new, younger generation born from the 1980s onwards. They're starting out in their careers. They're more sporty, international and individualistic."

 

A visit to a Chevrolet showroom leaves no doubt that Chinese consumers can easily differentiate between the two brands.

 

"Buicks are high class cars. Chevrolets are for ordinary people like me," says Zhai Chengding, a 47 year-old office-ceiling installer looking to buy his first car. "They're inexpensive and dependable like the old Volkswagens, but they look a lot better."

 

On a trip to service her car, Zhang Hui also knows the difference. "My husband bought a Buick LaCrosse for use in his business," says the 50 year-old, who is married to a computer-services entrepreneur. "He bought me a Chevrolet Lova, which is smaller and more nippy."

 

Betz says Chevrolet is doing especially well in China's smaller, less affluent cities.

 

Average incomes in these centers of population are often far lower than the country's four premier cities: Beijing, Shanghai, Guangzhou and Shenzhen. But they are growing faster, along with rates of car ownership, which are now heading towards saturation in China's richest urban areas.

 

Moving downmarket has also brought GM into competition with domestic brands.

 

Cheaper and of lower quality, homegrown cars used to have a section of the market largely to themselves. Now that Chevrolet has arrived with comparable prices and higher quality, they are losing market share.

 

Sales of Chery badged cars, for example, fell by 9 percent, year-on-year, in the first 11 months of 2008. Units sold by Xiali fell 10 percent by the same measure, according to figures supplied by Power.

 

Although pushing Chevrolet might revive GM's market share, selling vehicles in the mass end of the market of course yields lower margins.

 

"The problem with targeting younger people is that they have less money because they are less advanced in their careers," says John Zeng, an analyst at industry consultants Global Insight.

 

Developing Chevrolet could also cost GM if Chinese consumers got it into their heads that in buying a Chevrolet, they were essentially buying a Buick, but at lower price.

 

John Bonnell, an analyst at Power, has doubts about GM's multi-brand strategy.

 

"Gains from clever marketing can only be short term," he says. "I think all of the effort that GM has put into brand differentiation would have been better put back into their products or spent streamlining their overall business."