You may or may not have heard, but China recently fined General Motors (NYSE: GM) 201 million yuan, or $29 million, for "monopolistic pricing." More specifically, Shanghai's pricing regulator stated it would fine the U.S. automaker for setting minimum prices on specific models, according to China Central Television. All of that said, if the alleged price floor bothered Chinese consumers, you sure couldn't tell by looking at GM's sales in China. Here's a look at GM's impressive full-year results in the world's largest automotive market.
Another year, another record
A mere day after GM posted a 10% gain in December amid the U.S. auto industry's record year, the company followed it up with a record of its own. General Motors and its joint ventures delivered a record 3,870,584 vehicles in China during 2016. That impressive total was a 7.1% increase from its previous record set in 2015.
If you're keeping track, that makes 2016 the fifth straight year that GM's largest market, in terms of retail sales, was China -- and China now generates more than one-third of GM's global sales.
The driving force behind GM's success in China has been its consistent launching of new and refreshed vehicles, as well as its lower-cost Baojun brand. In fact, GM launched 13 new and refreshed models in China last year alone, keeping it on pace for its goal of 60 new/refreshed models through 2020. Even better, for average transaction prices and profits, is that 40% of those launches through 2020 will be SUVs and MPVs.
Breaking down the brands
Looking at GM's umbrella of brands, starting with the aforementioned and surging Baojun brand, it posted a 49% sales increase in 2016 to a record 688,390 units. Buick also continues to drive excellent results, posting a record in China last year with sales reaching 1.18 million, a 19% increase compared to 2015.
Cadillac's sales volume is much lower in terms of units, but it still had a very impressive year, with sales jumping 46% compared to the prior year. In fact, the increase to 116,406 units sold in China marks the first time GM's luxury brand has cracked the 100,000 unit total in the country. Chevrolet, GM's highest-selling brand in the U.S. market, remains a work in progress in China. Its sales reached 525,273 during 2016, but GM is committed to introducing 20 new or refreshed Chevrolet products by 2020 to help reignite the brand at retail.
A 10,000-foot view highlight, across all brands, was found in GM's SUV deliveries. Last year, its SUV sales jumped 45% to 673,409, and if that's a trend that continues in China, as it has here in the states, it could really help turn China into a more profitable region for major automakers. Right now, new vehicle sales in China far outpace the U.S. -- sales in China reached 21.7 million through the first 11 months, compared to the full-year total of 17.54 million in the U.S. -- but the latter remains a much more lucrative market in terms of pricing and profits. For context, during the third-quarter GM North America generated $3.5 billion EBIT-adjusted, while GM International Operations, which includes China, generated $300 million.
What about the tax incentive?
China's full-year sales aren't yet official, but one thing behind its strong year was 2016's tax incentive, which cut the purchase tax in half, from 10% to 5%. Initially, analysts were worried that if the tax were to go immediately back to its normal 10% this month, it could stunt the auto industry's sales. Fortunately, it's now official that the tax will only move halfway back to its normal level, up to 7.5% in 2017, and then to 10% in 2018. That should soften the negative impact to sales early in 2017 and set GM up for another very strong year in China, "monopolistic prices" or not. That will become increasingly important as GM needs to build a second pillar of profits as the North American market plateaus.