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Will General Motors' China Sales Growth Translate Into Profits?

By John Rosevear – Oct 10, 2016 at 8:02AM

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GM's sales in China jumped again in September, but that doesn't necessarily mean a big jump in profits. Here's why.

A familiar face: GM's iconic Chevrolet Camaro made its debut in China last month. Image source: General Motors. 

General Motors (GM -2.99%) said that it delivered 343,773 vehicles in China in September, up 16% from a year ago. Year to date, GM's sales in China are up 9%.

Big gains for Cadillac paced a good month for GM in China

GM's long-term project to make Cadillac a contender in China's huge luxury-car market took another solid step forward in September. Cadillac sales rose 63% from a year ago, to 12,359 vehicles, on strong demand for the brand's new midsize crossover SUV, the XT5. Sales of the big XTS sedan and the China-only ATS-L, a longer-wheelbase version of the compact ATS sedan, were both up over 30% year over year.

Buicks have long been big sellers in China, but the brand showed strong growth in September. Buick delivered 108,325 vehicles, up 23% from a year ago. Demand for the  compact Excelle GT, a close relative of the U.S.-market Buick Verano, continued to be strong, while sales of the Envision crossover SUV rose 70% to more than 18,000 vehicles. The midsize Envision, introduced last year, has been a big hit for GM in China.

Chevrolet had lost ground in China after government incentives favoring its small Sail sedan were discontinued late last year. But it managed its second consecutive month of growth in September, delivering 51,932 vehicles for 2.6% year-over-year gain. But a bigger boost may be forthcoming: GM said that the redesigned 2018 Equinox crossover will make its debut in China next month.

Sales of the affordable Baojun 730 minivan jumped 45% in September. Image source: General Motors.

GM's Baojun brand is positioned as an affordable alternative to domestic Chinese brands. It continues to do well, delivering 62,719 vehicles in September for a 33% year-over-year gain. GM said that deliveries of the Baojun 730, a minivan marketed to young families, were up 45% from a year ago. 

Wuling is a GM joint venture that makes small, inexpensive commercial vans. That segment of the market has suffered as China's building boom has tapered off, but the brand made some progress in September. Wuling delivered 108,225 vehicles last month for a 6% year-over-year gain.

SUVs are giving GM a good year in the Middle Kingdom

"The growth in demand last month was supported by improving product mix," GM China president Matt Tsien said in a statement. Translation: Just as in the U.S., GM's SUVs are drawing lots of buyers in China.

The XT5 is a key driver of Cadillac's ongoing growth in China, while the Envision and Baojun 560 crossover SUVs have given those brands substantial boosts since their debuts last year. 

GM's next China hit? The all-new 2018 Chevy Equinox is set to joint the China lineup shortly. Image source: General Motors.

GM is gearing up to build on that success. In the near term, the arrival of the all-new Chevy Equinox in China could drive significant additional growth (the outgoing Equinox wasn't sold in China). Over the next couple of years, GM will bring two or three new Cadillac crossovers to market, along with a revamped version of the big-selling small Buick Encore. 

For shareholders, reason for cautious optimism

GM, like most of its global rivals, has faced a tougher market in China in 2016. Improving products from the domestic Chinese automakers have put pressure on the global brands' pricing in segments at the lower end of the market. That has put a dent in GM's profits: Its equity income from its China joint ventures dropped 6% in the second quarter.

At least in terms of sales, September's 16% sales increase capped a great third quarter for GM in China. GM's China sales rose 18% in both July and August versus the year-ago months. Whether those sales gains will translate into big profit gains depends on how well GM's pricing held up -- or put another way, on whether fat discounts helped boost GM's sales. We'll know more when GM reports its third-quarter earnings later this month. 

John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. We Fools may not 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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