Why GM’s Sales Mix In China Must Change
General Motors (NYSE:GM) ended 2016 having sold over 3.87 million new vehicles in China, a 7.1% increase over its 2015 sales. GM’s sales in 2016 were helped by lower transaction prices as the sales tax on vehicles with engine displacement less than 1.6 liters was lowered to 5% and dealerships offered considerable incentives to customers. This sales tax amnesty was removed at the end of last month. GM’s strength in the region will be put to the test in the coming months as it remains to be seen whether the company can sustain similar levels of growth without incentives to spur purchases.
The U.S. auto maker saw SUV sales increase by 46% compared to 2015, with sales of low cost Baojun SUVs increasing by 49%. The company launched 13 new or refreshed models in the calendar year 2016. It has plans of launching 60 such new or refreshed models by the year 2020, 40% of which are expected to be either utility vehicles or multi purpose vehicles. Since these have higher margins they should help push up GM’s equity per unit sold in the region.
The table below compares the scope for improving that GM’s China operation has in terms of the figure cited above. 
GM sells almost as many vehicles in China as it does in the U.S., Canada and Mexico combined. But the operating income generated per unit sold in China is almost six to seven times lower than in North America. Increasing the presence of SUVs and MPVs in the overall sales mix can help push GM’s operating income in China to similar levels as in North America.
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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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