Why GM’s May Sales In China Were A Mixed Blessing
Last year, General Motors revised its China market forecast to a growth rate of between 2%-3% following the stock market crash in July. At the end of the year, the company appeared slightly more optimistic about China, raising its growth forecast to somewhere in the range of 3% and 4%. Given that China is GM’s biggest market and GM’s China division is the most valuable for the company, according to our estimates, it is imperative that the company maintain its profitability in the region.
With that in mind, the sales trend in the first four months of the year presented a worrying trend for GM’s investors. Sales only grew at a dismal 1.7% on a year-over-year basis. However, there was a bumper increase in unit sales of 17% in May, driven both by a cut in sales tax rate by the Chinese Government and generous discounts from dealerships. Overall, the market grew by 11% in May, but a combination of high inventory levels at dealerships, high production levels at factories and a glut of new models entering the market should result in low margins for auto makers in the near term.
GM’s sales grew faster than the overall market in the month of May. This was despite its Chevrolet brand’s sales declining by 24% year over year. More encouraging for GM was that the increase was driven by a 30% increase in Cadillac sales, which have considerably higher margins than Chevrolet vehicles, and a 61% increase in sales from Buick, which is riding high on the back of Baojun 730 MPV and Baojun 560 SUV.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for General Motors
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