General Motors (GM 4.37%) has proven its global retail prowess, and nowhere is that more evident than in the world's largest automotive market: China. General Motors was early to seize the Chinese market, compared to crosstown rivals such as Ford Motor Company (F 0.47%) and Fiat Chrysler, and its results in March were again solid. Let's take a look at last month's highlights and what recent trade tensions between the U.S. and China could mean for GM and its investors.
Better than it sounds
General Motors and its joint ventures delivered 352,346 units in China last month for a 2% gain over the prior year. Sales toward the end of the first quarter did slow a bit -- sales through the first three months were up 8% compared to the prior year, to just over 986,000 units. However, GM's 2% gain last month doesn't do the sales volume justice: It was good enough to set a GM March record in China and was more than the 296,341 units GM sold in the U.S. last month.
Image source: General Motors.
Here's the brand breakdown: Cadillac again posted an incredible month in China, with sales jumping a staggering 46% from the prior year to over 18,000 units. Much of that was driven by sales of the XT5 luxury SUV, which continues to be the brand's best-selling model. XT5 sales increased 36% to more than 6,100 units. Sales of the XTS luxury sedan and ATS-L luxury sport sedan also popped 65% and 32%, respectively.
Buick's Excelle GT sedan helped drive the brand's sales 4% higher to an impressive 92,007 units. Sales of the Excelle GT alone hit nearly 24,000 units, and sales of the Verano family jumped 13% to over 15,000 units. Chevrolet deliveries also recorded an impressive 35% gain to 47,017 units, while GM's larger-volume brands, Baojun and Wuling, weighed on overall results with declines of 5.4% and 7.9%, respectively.
GM has long held a significant edge over Ford in China, and that gap has only widened recently. Ford's sales dropped 6% last year in China, compared to GM's 4.4% gain. Moreover, it wasn't just year-over-year gains where the gap remains obvious: GM sold more than 4 million units in China last year compared to Ford's 1.2 million. On the bright side, for Ford investors, the folks at the Blue Oval are preparing to double down, but investors of both need to be at least aware of mounting trade tensions.
Trade tensions
GM's 2% gain in March won't jump off the paper, though it was a great month in the grand scheme of things. But trade tensions could spook the market in the near term. After placing tariffs on steel and aluminum imports last month, President Trump also took a shot at China's automotive trade policies. China currently requires foreign automakers to enter joint ventures with local automakers to produce vehicles in the country -- to avoid a 25% tariff on vehicles brought into China -- and prohibits the foreign entity from owning more than half of the partnership.
There's definitely pressure from the U.S. for China to lower its tariff on imported vehicles, but the reality is, most foreign automakers are already producing vehicles in China through joint ventures, and some have renewed their joint venture contracts for the next two to three decades. More important, perhaps, is that foreign automakers would prefer business as usual, or a reduction in tariffs, without uncertainty of trade policies interfering with near- or long-term strategies -- as GM points out in its obligatory "work together" statement:
"We support a positive trade relationship between the U.S. and China, and urge both countries to continue to engage in constructive dialogue and pursue sustainable trade policies. We continue to believe both countries value a vibrant auto industry and understand the interdependence between the world's two largest automotive markets."
As sales in the U.S. peak, it's important for foreign automakers to capitalize on China's volume while optimizing as much as possible for profits. Investors would be wise to keep an eye on trade tensions between the U.S. and China, but automakers with established joint ventures shouldn't be too concerned -- Ford has imported less than 2% of its vehicles into China through February -- as they rely very little on importing vehicles into China. And if China ends up making tariffs more favorable, it'll only add to the options and possible strategies available for foreign automakers.
