GM Forges Ahead in China Despite Auto Industry Uncertainty
GM (NYSE:GM) continued to regain market share in China in spite of lackluster performance of the overall Chinese auto sector. Last month, GM along with its joint venture partners posted more than 20 percent year-over-year (yoy) increase in sales in China even though the overall passenger vehicle sales growth experienced 0.4 percent yoy decline, according to China Passenger Car Association. [1] [2] GM’s sales growth was led by 40 percent yoy increase in mini-commercial vehicles as well as strong demand for Buick Excelle and Chevrolet Cruze. We believe that Chinese auto-market conditions will remain challenging in the near term but will be supported by pro-growth policy as China reins in inflation further, providing GM more room for growth in the medium-term. GM primarily competes with other automakers such as Ford (NYSE:F), Toyota (NYSE:TM) and Daimler AG (NYSE:DAI).
We currently have a Trefis price estimate of $26 for General Motors’s stock, which is more than 20% above the current market price.
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After near-term pains, Chinese auto-market growth will be supported by pro-growth policy
We expect that Chinese auto-market will recover on a month-on-month basis in December as automakers traditionally offer the largest discounts during this period. But the risk to GM’s near-term sales growth remain because of overall slowing down of domestic auto-market in China, which is being adversely affected by high levels of benchmark one-year lending rates in China as The People’s Bank of China (PBC) strives to control inflation. [3] We expect that in the medium-term PBC will be able to lower interest rates as inflation gradually recedes, which will support Chinese auto-market growth and in turn provide further room for market share growth to GM. [4]
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