GM Continues to Shine in China
Apr 12th 2012 10:02AM
Updated Apr 12th 2012 2:14PM
Whether you were expecting a big rebound or a big collapse in China, you're likely to be disappointed: Auto sales in the Middle Kingdom continued their sluggish ways in March, rising 4.5% over year-ago totals.
That's in line with the trend in recent months, in which the sales pace has more or less held steady after a period of unprecedented growth -- though sales for the first quarter, taken as a whole, were down a bit relative to 2011.
But not all automakers doing business in China are suffering from lackluster sales. In fact, market leader General Motors (NYS: GM) continues to post some nice gains.
A tale of two markets
GM's sales growth here in the U.S. has trailed the overall market as dealers anxiously await new products, but its results in China have been impressive under the circumstances. GM's China sales were up 10.7% in March versus the year-ago period, making it the company's second-best month for sales ever in China -- and the first quarter was its best quarter yet.
What's driving that? The same thing that usually drives sales success elsewhere: strong product. GM China President Kevin Wale credited strong sales of the new-to-China Chevy Malibu, as well as the continued strength of the Chevy Cruze and Buick Excelle.
The Excelle, a China-only small sedan based on an old Daewoo model, is regularly one of China's top-selling cars. It was joined a couple of years ago by a deluxe model, the Excelle XT, a close relative of the Buick Verano compact sold here. Both did well in March, up 25% and 23%, respectively.
Meanwhile, the Cruze -- the same car sold in the U.S. -- was up 7.7%. GM now sells almost as many Cruzes in China as it does in the U.S., where it remains one of the best-selling cars in the hot-selling compact segment. And Cadillac -- or at least its small SUV, the SRX -- is finally getting some market traction, with sales of the brand up 35%. Nearly all of those were SRXs, as Cadillac sedans continue to struggle in the Chinese market.
But will GM be able to keep up this momentum if the overall market continues to sag?
A deeper look at the Chinese auto market shows that the growth of GM and other foreign automakers seems to be coming at the expense of China's domestic producers. While the local brands report sagging sales, the luxury market continues to be white-hot, with brands such as Audi and BMW posting strong gains, while mainstream global automakers such as Honda (NYS: HMC) (up 12% in March) and Ford (NYS: F) continue to show solid growth.
Ford, which just announced a $600 million investment in Chongqing to increase production capacity, is on track to introduce 15 new vehicles in China by 2015 -- and may be planning to introduce its own luxury brand, Lincoln, to the country. And Volkswagen (OTC: VLKAY), second only to GM in the Chinese market, reported that its sales for the first quarter were up a solid 12.5%.
This success could be at risk, though. Two factors could come into play: First, the Chinese government raised gas prices by 7% in late March, according to Bloomberg. That could push consumers toward smaller models, helping China's domestic carmakers (which tend to focus on small, inexpensive cars) at the expense of the foreign brands. Second, the Chinese government has already made some policy shifts aimed at limiting competition from the global producers, and it could take further steps to help its indigenous auto industry if trends persist.
But at least in the near term, there's cause to be cautiously optimistic about GM's prospects for further growth in China. And GM's not alone: Quite a few American companies are finding strong growth, thanks to savvy execution in the fast-growing new markets like China. Motley Fool analysts have identified three big-name companies that are particularly well-positioned to profit, and you can learn more right now with our new free report: "3 American Companies Set to Dominate the World." It's completely free for Fool readers, but only for a limited time -- so grab your copy now.
At the time this article was published Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. Motley Fool newsletter services have recommended buying shares of Ford and General Motors and have recommended creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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