General Motors' (NYSE: GM ) biggest success story in recent years has been its rapid growth in China. Despite lacking a "home-field advantage," GM has out-competed other global automakers in China to become the market leader along with Volkswagen.
In fact, while GM still earns most of its profit in North America, the company has sold more cars in China than in the U.S. every year since 2010. This year, GM is poised to hit an even more impressive milestone. GM is on pace to sell 3 million vehicles in China for the first time.
The company's strong momentum in the world's biggest car market is a great sign for investors. China is already a profitable market for GM, and it will become an even more significant profit driver in the next five years.
China growth explosion
GM has expanded rapidly in China over the past decade or so. Ford (NYSE: F ) has (rightly) been getting a lot of attention for its strong growth in China; its sales have increased 51% year over year through the first nine months of 2013. However, Ford is still a small player there, compared with GM.
Since 2007, GM has gone from selling around 1 million vehicles annually in China to a record 2.84 million last year! That was more than four times as many vehicles as Ford sold in China last year. So despite Ford's torrid growth, it's nowhere near challenging GM or Volkswagen.
Through September, GM's unit sales in China were up 11.1% year over year to 2.31 million. Furthermore, GM sold more than 750,000 cars in China during Q4 of 2012, so the company has already passed the 3 million mark if you look at the past 12 months. If GM maintains its recent sales growth rate through the end of the year, the company will sell approximately 3.15 million vehicles in China in 2013.
One reason GM's progress in China is so exciting is that the country has a thriving luxury car market, as well as growing demand for mid-range cars. In other words, while China is obviously a high-volume market, it's not just about cranking out cheap cars.
Fortunately, GM's best growth has been in the upper end of the market. While GM's year-to-date sales in China are up 11.1% overall, Buick sales grew by 17.6% and Cadillac sales grew by 51.2%.
Cadillac's strong growth is very promising, although the brand still represents a tiny fraction of GM's China business, with unit sales of 32,238 through September. Earlier this year, GM and its joint venture partner broke ground on a Cadillac assembly plant in Shanghai. By boosting local production of Cadillacs, GM will be able to avoid China's 25% car import tax, which should help GM boost Cadillac sales there. Ultimately, GM's goal is to triple Cadillac sales by 2015 and take 10% of the Chinese luxury market by 2020.
GM's rapid growth in China over the past decade has transformed the company. While its growth rate has cooled off a bit, GM is still racking up impressive gains in China and will almost certainly sell more than 3 million vehicles this year.
Most importantly, GM's higher-end nameplates -- Buick and Cadillac -- have been among its best performing brands in China. GM's plan to boost the profile of Cadillac within China is particularly promising, as the country has a large and growing luxury car market. This could really take the profitability of GM's China business to the next level.
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