Why GM Needs To Maintain Its Cadillac Growth In China
General Motors (NYSE:GM) posted equity income of $ 459 million from its China operations in the third quarter of fiscal year 2016. This figure was roughly the same as that from a year ago despite a 17% increase in unit sales in the region. This means that although the company is growing its sales at a healthy rate, its sales mix is tilting towards vehicles with heavy incentives on offer and lower margin models. One way the company can overcome this alarming trend is by increasing the sales of its luxury brand Cadillac.
In the U.S., sales of GM’s luxury brand Cadillac have declined by close to 3.8% to 148,5oo units so far this year. This is slightly worrying for the company which wants to grow sales of the brand to rival those of luxury cars from German companies BMW and Daimler. Most of the brand’s growth in recent years has come from China, where sales have grown from around 50,000 units in the full year of 2013 to over 100,000 units in the year so far already. This is encouraging for the company but it has to continue increasing Cadillac sales in order to meet its targets for the brand to increase its profitability in the region.
Cadillac sales have grown by more than 50% on a year over year basis for five months in a row in China. In November, sales jumped by 70%, with the XTS sedan and the XT5 crossover delivering most of the gains for the brand. Since Cadillac has the potential of delivering nearly three times the cash profits of an average car sold by GM, it is important for the company to maintain this growth for the brand.
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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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