General Motors (GM, Financial) and its joint venture partners in China sold 3.87 million vehicles in the mainland in 2016, registering yet another fantastic year for the automaker. This is an improvement of more than 7% despite witnessing a 2.3% fall in December sales. General Motors sold 434,799 vehicles in the last month of the year. The decline, however, could not stop the Detroit carmaker from posting impressive results for the year in the world’s hottest car market.
A look at the year
General Motors manufactures vehicles in China in collaboration with SAIC Motor (SHSE:600104, Financial), the largest automaker in the country. In addition, the American automaker has a three-way tie-up with SAIC and Wuling Motors (HKSE:00305, Financial). This is the fifth year in a row that China has been the company’s largest market for retail sales. In 2016, the Asian economy made for more than one-third of General Motors' global sales.
The Baojun brand recorded a massive 49% sales gain in 2016 to a record 688,390 units. Buick also gave an excellent performance last year as sales topped 1.18 million vehicles, a surge of 19% compared with 2015.
Luxury brand Cadillac's sales volume may appear tiny compared with Baojun or Buick, but it saw a stunning year in terms of sales gain. Sales soared 46% to 116,406 units compared with 2015 in China.This is the first time General Motors’ luxury brand has crossed the 100,000 unit sales mark in the mainland. For Chevrolet, General Motors’ top-selling brand, sales volumes came in at 525,273 units in 2016. The automaker plans to launch 20 revamped Chevrolet vehicles over the next four years to boost its sales performance.
SUV deliveries surged a stunning 45% to 673,409 units. SUVs are high-margin vehicles and if SUV sales continue to see such strong growth in the coming years, China may turn out to become one of General Motors' key profit drivers. Presently, the U.S. is the company’s most lucrative market due to favorable pricing policies.
Strong performance throughout the year
China is a growing economy with a low car ownership rate. This coupled with the rise in discretionary income provides a solid long-term opportunity for the carmaker. General Motors has been quite effective in understanding the pulse of this market. The company continues to consistently launch new and revamped vehicles and is widening its low-cost offerings to tap the middle-class population. The company introduced 13 new and refreshed vehicles in 2016 in China, with plans to launch 60 models through 2020. In fact, 40% of these vehicles will be SUVs and MPVs. Not only will this help the company churn higher sales volumes, but will support it in maintaining a lucrative average transaction price with healthy margins.
The overall automotive industry in China saw better-than-expected volumes last year. This was promoted by the tax cut seen in small engine cars. Demand for cars remained solid throughout the latter half of 2016, helping General Motors cement its dominance and continue to remain the most popular foreign carmaker in China.
Disclosure: I do not hold any position in the stocks mentioned in this article.
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