Why GM’s Early Sales in China In 2017 Are Worrying

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General Motors

General Motors (NYSE:GM) saw its new vehicle sales drop by 15% in the first two months of 2017 in China. 2016 was a strong year for the company, with annual sales growth of 7.1% as full year sales reached 3.87 million units. A major driver of that growth was a reduction in the sales tax on vehicles with engine displacement of less than 1.6 liters, from 10% to 5%. This sales tax reprieve expired in December, and likely had a strong effect on GM’s sales in the January-February period as consumers opted to make car purchases in November and December to save on their purchases.

Here are GM’s year-over-year sales comparisons for the last four months in China:

gm 17 china

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China is GM’s biggest market, and we estimate that its China business is the most valuable division for the company, given the enormous potential for growth in the region. One way GM can capture this growth is by capitalizing on the boom in SUV sales in the region. Somewhat surprisingly, GM has been slow to catch onto the SUV sales boom in China. However, when the company introduced models in this segment — Buick’s Envision, Cadillac’s XT5, and Baojun 560 — they have all been big hits.

Now the company is planning to add to its SUV lineup in China, with the 2018 version of the Chevy Equinox and potentially Chevy Traverse and Buick Enclave. The addition of these vehicles can help reverse the trend in GM’s China sales and boost profits as well, since these models are generally more profitable than passenger vehicles. Both of these factors provide significant upside for GM’s results in China.

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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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