General Motors Company (GM)’s Big Challenge in China

Page 1 of 2

It was a record-breaking month for General Motors Company (NYSE:GM) in China: The General said on Tuesday that it had its best sales month ever in China in January, breaking the 300,000-vehicles-sold mark for the first time ever.

GM’s two principal joint ventures had their best sales months ever, as did GM’s three most prominent Chinese market brands: Buick, Chevrolet, and Wuling.

But Cadillac sales were down, another symptom of a frustrating challenge for General Motors in China.

General Motors Company (NYSE:GM)Strong sales for the market leader, but GM still has concerns
Worries about Cadillac shouldn’t overshadow the fact that it was a great month for GM overall. GM’s sales in China were up 26% from year-ago totals, though that requires a bit of explaining. China’s New Year celebrations, during which much of the country grinds to a halt for several days, happened to fall in January last year. That made last year’s numbers a bit lower than they might have otherwise been.

A better comparison would be to 2011, when the New Year began in February (as it will in 2013). As it happened, January of 2011 was GM’s previous all-time-high month in China – and last month’s sales were up 15.9% from that former high-water mark.

That’s a solid result by any measure, though a deeper dive into the numbers raises some concerns.

One of those concerns is that Cadillac sales were down about 47%. Another is this: While Buick sales were up almost 22% over year-ago totals, and Chevy sales were up 21.6%, sales of Wulings – the inexpensive little commercial vans that account for about half of GM’s China sales – were up almost 36%.

Now, Cadillac – in a good month or a bad one — represents just a tiny fraction of GM’s total sales in China. And the dip in sales probably had a lot to do with the fact that it has discontinued its old big car – the China-only SLS sedan – and hasn’t rolled out its successor (the XTS) yet.

And there’s nothing wrong with a big jump in Wuling sales in and of itself. The little vans aren’t super-profitable, but they do make money for GM.

But they’re both symptoms of GM’s most frustrating challenge in China (and elsewhere): making more money.

The big question: Why isn’t GM making more money?
While the gap has been closing lately, GM still sells more vehicles than arch-rival Volkswagen in China. But VW makes a lot more money there: More than twice as much in recent quarters.

Both global giants split their profits with local Chinese joint-venture partners, as required by Chinese law. Both have spent big to build local design and manufacturing facilities and navigate China’s often Byzantine web of rules and regulations. Yet Volkswagen’s profits in China dwarf GM’s. Why?

The answer comes down to the kind of vehicles each sells. GM’s Wuling vans are popular, but not very profitable for the General. That’s partly because the little vans are inexpensive and carry small margins, and partly because GM is a minority partner in the venture that produces them – but has the contractual right to count all of the venture’s sales as its own.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!