SUVs help GM buck trend of overall slumping auto sales in China

Usually when a stock market plummets, sales of big-ticket items such as automobiles often feel the aftershocks.

China's stock market took a pounding on Monday (the Shanghai Composite Index fell 8.5 percent, not to mention the rough month it had in June), and there is falling demand for cars.

But US giant General Motors Inc is in the driver's seat in the Chinese market, particularly when it comes to sales of SUVs and Cadillacs.

On July 23, GM reported second-quarter earnings that beat Wall Street's expectations. GM did this despite a slew of analysts expecting a weak quarter in China.

Earnings in GM International Operations rose 10.8 percent to $349 million. GM delivered 823,000 cars in China, up 2.6 percent from a year ago.

New SUVs models - particularly the Buick Envision (available only in China) - and higher sales of Cadillacs led to a 10.2 percent margin. GM sold 57,000 Envisions in the first half of 2015. They're not cheap, either, ranging in price from about $43,000 to $55,000 fully equipped. Sales of Cadillacs rose 14 percent in the first half.

"The first two quarters of the year were strong as we fully capitalized on a robust North American industry and maintained our strength in China, despite the challenging conditions in that market," said GM CEO Mary Barra.

"Record margins in North America and strong margins in China produced a second quarter that demonstrates the earnings power of this company," said Chuck Stevens, executive vice-president

and chief financial officer. "We expect continued strong performance in these key markets."

GM's outperformance came amid a dull backdrop for the Chinese auto industry. According to the China Association of Automobile Manufacturers (CAAM), 82,300 vehicles were imported in May, down 38.5 percent, and the total export was 71,100 units, down 16.8 percent.

For the first five months, 436,600 units were imported, down 23.8 percent, with exports of 334,100, down 9 percent. Some 67,800 autos were exported in June, down 4.2 percent from May and 16.3 percent lower year over year.

For the first half of 2015, exports totaled 385,100, down 13.5 percent. Passenger car exports were 213,700 units, down 18.7 percent; and 171,300 commercial vehicles were exported, down 6 percent.

"I wouldn't have predicted record sales volumes given the overall market, but that just highlights the growth trajectory GM remains on in China as it adds to its vehicle lineup, particularly with increasingly popular CUVs/SUVs; continues its push with the Cadillac brand; and expands capacity," David E. Zoia, editorial director of Wards Auto, wrote to China Daily. Wards tracks global trends in the international auto industry.

"The record volumes also suggest GM is having some success in the Tier 3 and below markets, which continue to grow as buying power improves," Zoia said. "Its growing SUV sales and expansion of luxury-vehicle sales overall is helping its pricing and profitability as well."

Some reasons for GM's success, according to CEO Barra, include cutting costs for materials used in GM's Chinese models and building more higher-priced SUVs with the company's Chinese partners. GM said its share of profits from its ventures in China was flat with a year ago at about $500 million, but the margins rose to 10.2 percent from 10 percent.

Stevens said the company is also working with dealers to manage inventory levels.

"There are a lot of levers we can pull" to cut costs, the CFO said. Long term, GM expects to sell 35 million vehicles a year in China, up from about 20 million now, Stevens said. This year, GM expects to make about a $2 billion profit in China this year.

"GM's results later in the year may reflect more difficulty, and there is risk as price cuts did not help improve sales, but do impact profitability," Stephanie Brinley, a senior analyst with HIS Automotive in Michigan, wrote to China Daily. "GM is expecting to ride out the downturn, as evidenced by the $5 billion investment announced yesterday."

She was referring to GM's plan to invest $5 billion with Shanghai Automotive Industry Corp, the state-owned automaker that is GM's main partner in China. GM and SAIC will make Chevrolet compact cars and SUVs to be sold starting in 2019 in India, China, Brazil and Mexico.

Contact the writer at williamhennelly@chinadailyusa.com