General Motors (NYSE:GM) did lots of things wrong in the years before the Great Recession. The company nearly collapsed as a result. However, one thing it did right was bet on China's auto market. This farsighted move allowed GM (along with its Chinese joint venture partners) to become the leading automaker in the world's No. 1 auto market.
For many years, GM's growth in that country was driven by the Buick brand, which has a storied history there. However, Buick is now being eclipsed by the upstart Baojun brand, which General Motors and its partners launched less than a decade ago.
Baojun's growing lineup of affordable SUVs has driven massive sales increases in the past few years. As a result, Baojun is on track to become GM's best-selling brand in China by a comfortable margin in 2018. Moreover, the brand's torrid growth shows no signs of slowing.
Baojun became big in a hurry
GM introduced the Baojun brand in China in late 2010. Baojun is an entry-level brand targeted at consumers who live in the country's smaller cities and rural areas.
Within a few years, sales growth exploded -- helped by the brand's first SUV, the Baojun 560. Baojun deliveries surged 173% in 2015, rising to 463,532 units from fewer than 200,000 units a year earlier. Sales more than doubled again by 2017, reaching 996,629 units.
For 2017 as a whole, Baojun was outsold in China by Buick, as well as Wuling, another GM joint venture brand that specializes in commercial vehicles. However, by the end of the year, Baojun was starting to overtake both of its sister brands in terms of monthly sales. This momentum has continued in early 2018.
2018 will be another great year
Through the first two months of 2018, Buick has outsold Baojun in China by 7.4%. That said, Baojun deliveries have risen 37% year to date, compared to more modest 11% growth for Buick.
Indeed, Baojun could surpass Buick for good within the next few months. The brand is launching its third SUV this month: the Baojun 530, which is positioned between its other two SUV models (the 510 and the 560). This should help maintain its sales momentum despite having recently lapped the launch of the hugely popular Baojun 510.
The E100 electric city car could also be a sleeper hit for the Baojun brand. After national and regional subsidies, the two-seater's price was as low as $5,300 when it was launched last summer. GM and its joint ventures delivered more than 11,000 units of the E100 last year, even though it was only available in the city of Liuzhou. GM is now starting to expand distribution, but ultimately the E100's success will depend on the level of government subsidies available.
A good hedge for GM in the Middle Kingdom
Baojun has been General Motors' biggest growth driver in China over the past three years or so. It could also prove to be a good hedge for GM in the event that rising protectionism in the United States sparks a backlash in China.
Japanese auto brands experienced sharp sales declines in China in 2012, due to a territorial dispute between the two countries. If American auto brands were to face similar pressure in 2018, it could undermine sales of Buicks and Cadillacs.
However, GM now gets more than half of its deliveries in China from its homegrown nameplates, Baojun and Wuling. These brands could prove more resilient if anti-American sentiment becomes a headwind in China. That's just one more reason for General Motors shareholders to cheer Baojun's explosive growth.