General Motors (NYSE:GM) investors became a little anxious as China's economy began to slow down and sales of vehicles stalled -- after all, GM sells a ton of vehicles in the world's largest automotive market. In a bit of good news, though, China cut the purchase tax on vehicles with engines of 1.6 liters or smaller from 10% to 5% to spur sales.
How well did it work? Well, after the first full month -- the tax cut was effective starting Oct. 1, 2015, and goes through the end of 2016 -- it looks very promising. Here's a look at GM's and Ford Motor Company's (NYSE:F) solid October sales data in China.
General Motors and its joint ventures' retail deliveries increased 15% in October compared to last year, to hit a record 327,037 vehicles. Buick was a large part of that success as the brand's sales topped 100,000 for the first time and it set its best-ever monthly sales total. Compared to last year's October, sales of Buick soared 42% higher, led by the Excelle GT and Envision SUV.
While GM is receiving recognition for vastly improved passenger cars these days, investors know that the automaker is still widely known for its SUV products. That's a good thing in China, as demand for SUVs and MPVs continues to grow; in fact, GM's SUV sales in China soared 255% year over year in October.
Cadillac sales in China increased 23% higher during October compared to last year. While Cadillac sales only reached 5,757, it was good enough for an October record in China. Baojun sales soared 113% to nearly 52,000 units last month, compared to last year's October. Those solid results were driven by the Baojun 560, which became the second-best-selling SUV in China within three months of its mid-July launch, according to data from the China Association of Automobile Manufacturers.
It's not just investors in GM who should benefit from China's tax cut aimed at spurring vehicle sales -- Ford Motor Company's sales also increased at a decent clip.
Ford China sold 95,185 vehicles last month, with a strong performance in its passenger vehicle sales thanks to the tax cuts. That was a 7% increase compared to last year, and October ended up being one of Ford's best months so far in 2015 in China.
"Sales of Ford's portfolio of SUVs continue to bolster the Ford brand, with sales of the Ford Ecosport, Ford Kuga, Ford Edge and New Ford Explorer up 15 percent in October compared to October 2014 and year-to-date sales up seven percent compared to the same time in 2014," according to Ford China's press release.
Furthermore, Ford's Kuga (Escape) used its 9% gain in sales last month to break the 100,000-units-sold threshold through the first 10 months of 2015. While October proved to be one of Ford's better months in China this year, its year-to-date sales are at about 884,000 units, which is flat compared to the same time period in 2014. If China's vehicle purchase tax creates more demand throughout 2016, rather than only a temporary boost, look for next year to be a better year for the folks at the Blue Oval.
Is higher demand sustainable?
The biggest question for investors in GM and Ford is: How long will the stimulus aid sales in China? It'll be interesting to watch China's stimulus development heading through 2016 to see if it creates substantial and sustainable demand for vehicles, or if it's a temporary boost.
The good news for those hoping for the former is that history suggests it could happen. In 2009, amid the economic crisis, China also halved its purchase tax for the same 1.6-liter-engine-equipped vehicles, and the result was impressive: Light-vehicle sales in China soared 53% that year. While investors obviously can't expect results to reach those levels, this will be an extremely important development to keep an eye on over the next year.
Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. 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.