General Motors (GM, Financial), in collaboration with its Chinese joint ventures, racked up good growth of 7% by delivering 2 million vehicles through July, even in the face of rising competition from indigenous automakers. As far as July numbers are concerned, the company registered an impressive sales gain of 18% year-over-year by selling 270,529 cars and trucks. The sales gain was powered by solid performance of Cadillac, Buick and Baojun brands.
General Motors is facing intense competition from local automakers. The economy’s growth has decelerated, and the Detroit automaker is experiencing pricing pressure from home-grown players. Despite the challenges, company CEO Mary Barra remains confident about the automaker’s prospects in the country. General Motors is managing to put up a convincing show in the mainland.
A Look at the Numbers
The largest American automaker’s first half sales volumes improved 5.3% against the same period last year, as it sold 1.8 million vehicles. This is attributable to a good mix of MPVs, SUVs and luxury vehicles which count among the current preferences of the Chinese population. The combined efforts of different brands of the company helped General Motors to register sales gain for July. Buick brand witnessed a mammoth 30% sales gain during the month by selling 89,404 vehicles. The gain is attributable to huge volumes of sales of Excelle GT and Envision.
Baojun brand also registered an impressive 61% growth in July to 44,320 units as compared with the same period last year. Solid sales of Baojun 730 MPV as well as Baojun 560 SUV powered the brand growth. Cadillac sales also surged an outstanding 90% in July to 8,757 vehicles compared with a year before. The improved performance of Cadillac was powered by solid sales of XT5 luxury crossover and ATS- L sedans. Moreover, the brand’s XTS luxury sedan also spiked 54% year-over-year.
GM Remains Upbeat on China
General Motors has an investment with the local partners in China, as they are looking to tap smaller cities and rural areas. The company’s joint ventures in the country earned $471 million equity income during the second quarter this year, down from $503 million a year ago.
Demand for affordable cars is increasing and seeing double digit growth in Tier 3 and Tier 4 cities. General Motors has good exposure in these areas and is well positioned to capitalize on this given its joint venture with local players SAIC-GM-Wuling Autos. Reasonable brands such as Wuling and Boajun see sales of around 2 million vehicles every year.
China is an extremely valuable market for General Motors as the company derives a substantial portion of its revenue and profits from there. What bothers the company is the pressure exerted by the domestic automakers in China. Chinese automakers are growing stronger and threatening to snatch a great picee of market share from global automakers including General Motors, Ford (F, Financial) and Volkswagen (VLKAY, Financial).
Nevertheless, over the past few years, GM has been able to expand its product portfolio to include high profit-margin SUVs and luxury vehicles. This has helped the company to maintain its profit margin in China.
Last Word
General Motors is betting high on China. July success has given a morale boost to the company. Presently, the market is volatile and competition is intensifying, which is exerting pressure on prices and margins. General Motors is, however, upbeat about the potential the Asian economy offers. The company’s plans regarding widening its portfolio and improving the SUV lineup remains firm. General Motors is confident that it will be able to overcome the pricing pressure and emerge with good set of numbers in 2016.
Disclosure: I do not hold any position in any of the stocks mentioned in the article.
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