Quick: What's General Motors'
If you've been paying attention, you know that the answer is "China," at least in terms of sales volumes. GM's total vehicles sold in China outpaced its U.S. sales for the first time last year. While the automaker still makes more money here in the U.S., there's no question that its operations in China have become a huge part of its business.
This year, the white-hot growth of China's auto market has slowed, but GM's success looks set to continue -- though ongoing challenges remain.
Already another very good year for GM
GM's sales in China hit a major milestone in November 2010, when the company became the first global automaker to sell more than 2 million vehicles in the country in a single year. GM has already matched that mark in 2011 -- it happened this past Monday, the company said -- with sales up 6.6% through September. That's not an eye-popping gain like we've seen in years past, but it's solid growth in a market that is slowing.
GM is on track to top the 2.35 million total sales record it set in China in 2010, but it's important to note that those sales aren't really all GM's, at least not from a revenue perspective. GM, like other global automakers, operates in China through a series of joint ventures with Chinese firms. GM's agreements with its partners give the General the right to count all of the vehicles sold as if they were all produced just by GM, but the profits get split.
That's a big part of why the earnings in GM's "International Operations" division, which includes China, were only a fourth of the company's North American earnings in the second quarter, even as the two regions sold similar numbers of vehicles. But another reason is investment: GM continues to plow money into new facilities and programs in China. GM and SAIC announced a new electric-car development program last month, and the companies' Pan Asian Technical Center in Shanghai is working on number of major projects, including a new three-cylinder turbocharged engine that will be used in small GM cars around the world.
This level of investment is paying off, with growing sales of GM's (and SAIC's) most profitable products.
Solid growth with key products
Although the overall pace of growth in the Chinese auto market has slowed this year, in part because of the expiration of a program that offered generous tax breaks to buyers of cars with smaller engines, GM's global brands have posted big gains -- and those gains have accelerated of late. Shanghai GM, the General's flagship joint venture with Chinese giant SAIC, had its second-best sales month ever in September, with sales up almost 15% year over year. This is the venture that produces and sells (and increasingly, develops) Chevys, Buicks, and Cadillacs -- high-margin, high-visibility products of great importance to GM globally.
But a major opportunity remains
Cadillac, though, represents more of an opportunity than a success at this point. GM's leadership would dearly love to establish its old flagship marque as a global rival to the likes of VW's Audi and Daimler's (OTC: DDAIF.PK) Mercedes-Benz, and is thought to be investing major resources to make that happen, though the key products are still several years away.
Meanwhile, Audi is planning to double its already sizeable production capacity in China, and it, along with Mercedes and BMW (OTC: BAMXY.PK) are already locked in a fierce battle for leadership of what has become a booming luxury market in the country. Audi will produce in the neighborhood of 300,000 cars in China in 2011, while Cadillac's sales still total just a few thousand a month. As this market matures and new customers' brand preferences are established, the task of making Cadillac a major player in China will become more and more difficult.
Fortunately for GM, the success of its other brands should give it the time and resources to tackle that task.
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