GM Drives Toward Profits in Growing China Market

GM Drives Toward Profits in Growing China MarketThe Chinese auto market is growing at a blistering pace despite concerns about the withdrawal of government incentive programs and the supply chain disruption from the tragic Japanese tsunami. We think GM (GM) will be one of the main beneficiaries of this growth, as it beat Toyota (TM) this year to become the second largest passenger car manufacturer in China after Volkswagen (VLKAY). Other automakers including Ford (F), Daimler (DDAIF), and Honda (HMC) also stand to benefit from the growing Chinese vehicle market.

As the Chinese economy continues to grow at between 8% and 10% annually, consumer demand for vehicles will remain elevated in the years to come. While we estimate the total vehicle sales in China will approach 36 million by the end of our forecast period, Trefis members predict the total sales will rise higher to around 42 million. The member estimates imply an approximately 6% upside to our GM stock price estimate of $34.95.



Strong Growth in China's Economy


The recent rapid growth in China's automobile market was largely because China was able to sidestep the global recession and continue its rapid economic growth. It also benefited from effective government economic stimulus packages, which attracted the world's largest automakers to the country. Now, although the Chinese government has withdrawn industry subsidies to curb inflation, strong demand for vehicles continues as middle-class incomes expand – not only in big cities like Beijing but also in fast-developing tier 2 and tier 3 cities. More than 3.3 million passenger vehicles were sold in China from January to March 2011.

GM a Key Beneficiary

China has already become GM's biggest market with sales of 2.35 million in 2010 compared with 2.21 million in the U.S. We estimate that GM's operations in China contribute around 34% of its stock value.

The company's sales in China outstripped estimated industry sales growth in the first quarter of 2011, growing 10% from the same period in 2010 to about 685,000 units. (See In Spite of Challenges, GM Continues to Ride China Growth Story.) The expanding Chinese market comes at right time for GM when it's sales growth in North America has begun to slow.

GM offers a wide range of products for its Chinese customers, from expensive, high-end Buicks to low-end Chevrolets. It also offers cheaper cars like Baojun 630 Sedan, priced as low as $10,800, which should attract middle-class customers in the market for their first cars.

Our price estimate of $34.95 for GM's stock implies a premium of around 15% to market price.

See our complete analysis for General Motors

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46 Comments

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alinskysucks

Hmmm... and GM just built a $500 million dollar plant in ....MEXICO! Way to ship jobs out of the country with OUR money... They suckered obama in... What a fool obama is... See Ya.

June 02 2011 at 2:20 PM Report abuse +1 rate up rate down Reply
zattico

the chinese also make cars so gm beware

June 02 2011 at 3:35 AM Report abuse -1 rate up rate down Reply
richard

It`s good to see an American company making money in China. Any money coming our way is good.

June 01 2011 at 11:01 PM Report abuse +2 rate up rate down Reply
lindacharliebb

hopefully they can pay the taxpayers back soon , and reinvest in america .

June 01 2011 at 9:14 PM Report abuse rate up rate down Reply
1 reply to lindacharliebb's comment
Danny

The taxpayers have been paid back.

June 02 2011 at 6:12 AM Report abuse rate up rate down Reply
joper201

Has anyone noticed that most major corporations are making more profit from their offshore operations?

Could it be because most other countries economy are rapidly improving while Americas economy is stagnating and verging on a depression?

June 01 2011 at 9:00 PM Report abuse +1 rate up rate down Reply
dv8sxlr8

gm should have been left to fail with all the other companies this administration let close. another business would have bought them, and we would probablly have a better product, and jobs!!! the government should charge gm double what they borrowed for screwing over the retired workers the way they did, and for using the money to help increase sales overseas!!! i will never buy a new gm again, i might restore an old one,but never again a new.

June 01 2011 at 7:59 PM Report abuse -2 rate up rate down Reply
Outyman13

f gm should have let them go down .we screw up we go down

June 01 2011 at 7:33 PM Report abuse +3 rate up rate down Reply
2 replies to Outyman13's comment
lekpooh

RIGHT ON

June 01 2011 at 7:37 PM Report abuse +1 rate up rate down Reply
hugozoon

if we did we would never recover gm is the largest exporter to china without gm selling cars our deficite would spiral out of control.

June 01 2011 at 7:49 PM Report abuse +1 rate up rate down Reply
engineherder

Easier to beat the global recession when you don't care about pollution or human rights. We just exported our pollution so that it can be returned 10 fold. At least manufacturers in the US have to meet some standards.
Try as hard as you can to buy American.

June 01 2011 at 6:48 PM Report abuse +2 rate up rate down Reply
Kelli and Emory

GM Admits that Dealerships are Taking Chevy Volt Tax Credits
Submitted by Mark Modica on Tue, 05/31/2011 - 14:43
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GM Admits that Dealerships are taking taking the Chevy Volt Tax Credits
Automobilemag.com reports that General Motors has responded to my report questioning whether dealerships are gaming Chevy Volt tax credits. Chevy Volt spokesperson, Rob Peterson, states that "NLPC is confused." He then goes on to confirm that the dealerships purchasing Chevy Volts and reselling them as used vehicles are entitled to the $7,500 tax credit. Clearly, it is GM that is confused, considering that this was the main point of my report.

June 01 2011 at 6:31 PM Report abuse +1 rate up rate down Reply
spike

WoW .Wait till the republicans find out that G.M.is so successful.They are going to be PISSED.Thats quite a few million jobs that did not get thrown out with the republican white wash water

June 01 2011 at 6:31 PM Report abuse -1 rate up rate down Reply