China is becoming increasingly profitable for U.S. auto brands. Image source: Getty Images.

China is becoming increasingly profitable for U.S. auto brands. Image source: Getty Images.

Detroit's two largest automakers, General Motors (GM -0.55%) and Ford Motor Company (F 0.67%) understand that one of the easiest ways to offset slowing new-vehicle sales in the U.S. is to generate more profitable sales. One way to do that is to expand luxury brands -- Cadillac for GM and Lincoln for Ford. The good news is that while the automakers have had a tougher time gaining market share in the U.S., China helped send sales surging in 2016.

Cadillac reaches new heights

In the U.S. Cadillac has had its hands full restoring its place as an iconic luxury brand, but it's made progress. Over the past two years it has won 31 awards including Car and Driver magazine's "10 Best" for three years running. But sales wise, the growth story has been China. Cadillac sales dipped 3% in the U.S. last year, to roughly 170,000 units, but its retail sales in China surged 46% from roughly 80,000 units to 116,406 units.

When you consider that the U.S. and China markets generate 93% of Cadillac's sales, you can appreciate how much the brand's growth story in China really means. China helped push Cadillac's full-year sales total to nearly 309,000 units, the most since 1986 and an 11% jump over 2015. December sales alone jumped 15.5% and it was the seventh consecutive month of double digit percentage increases for GM's luxury brand.

"It was a stunning year for Cadillac's global growth in 2016," said Cadillac President Johan de Nysschen, in a press release. "Drawing more customers than any year in the past 30 is an excellent springboard for the robust product offensive from Cadillac in the coming years. While growing the business significantly and attracting a youthful and affluent demographic, we continue to elevate the aspirational character of the brand. We see this in a very rich model mix, with discerning customers opting for top models with very high specifications, driving up average transaction prices in the process."

In a way, Cadillac's surging sales in China is buying General Motors a little bit of time, because its portfolio is in a lull as it awaits three crossover Cadillac vehicles -- at a time when SUV sales are booming. Cadillac's average transaction price hit $53,796 per unit last year, which is roughly twice as much as some of its mainstream sedans, and is poised to move higher once the brand takes advantage of SUV trends starting in 2018. In fact, driven in large part by China's growth, GM expects Cadillac sales to double by 2020 to roughly 500,000 units globally.

Meanwhile, crosstown rival Ford is pumping the breaks on its rapid expansion in China.

Dial it down?

At the end of 2015 Lincoln had roughly 30 dealership stores in China, which had fueled Lincoln sales to a new annual high. In 2016 the store count soared to more than 65 dealerships in dozens of China's most prominent cities.

Despite its store count surging, it still trails GM's Cadillac by a wide margin. Lincoln sold 32,558 vehicles in China last year, and while that was triple the amount it sold in 2015, it was still less than a third of what Cadillac totaled.

Ford's sales in China from 2012 to 2016. Information source: Ford China press releases.

Ford's sales in China from 2012 to 2016. Information source: Ford China press releases.

Store counts and sales have surged in recent years, but expect Ford to pump the breaks a bit in 2017. "The growth in the network won't be as aggressive," Lincoln President Kumar Galhotra told Automotive News. "We're being very prudent. We don't want to end up overdealering certain cities, so we have a very specific plan, city by city, but we won't be doubling the network this year."

Despite luxury brands selling at a fraction of the volume of GM's or Ford's mainstream brands, these sales generate massive transaction prices and much healthier profits. The rule of thumb has always been that the luxury segment generates roughly 10% of sales but nearly one-third of profits. And at a time when new-vehicle sales are peaking in the U.S., capitalizing on surging luxury sales in China is going to be a focal point for major autos in 2017 -- and it appears Ford and GM are on top of it.