No Slowdown Here: General Motors Keeps Rolling in China

By Markets Fool.com

Buick is GM's biggest-selling retail brand in China. The Excelle GT, a cousin of the Buick Verano, is one of its best-sellers. Image source: General Motors.

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General Motors (NYSE: GM) said that its sales in China rose 18% in July, to a record 270,529 vehicles, powered by strong sales of high-profit luxury cars and SUVs.

GM's results: Hot-selling SUVs again set the pace

GM has a series of joint ventures with local Chinese automakers, but it reports its sales results by brand rather than at the joint-venture level. Those partners include the familiar Cadillac, Buick, and Chevrolet brands, as well as the China-only Baojun and Wuling brands.

Cadillac sold 8,757 vehicles in China in July, up 90% from a year ago. Hot sellers include a China-only extended-wheelbase version of the compact ATS sedan (called the ATS-L), the new XT5 crossover, and the big XTS luxury sedan. XTS sales were up 54% from a year ago.

Cadillac sales have jumped in China. A surprise hit: a unique-to-China longer-wheelbase version of the compact ATS sedan, called the ATS-L. Image source: General Motors.

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Buick is GM's highest-volume passenger-vehicle brand in China. Its sales rose 30%, to 89,404 units, in July, led by the popular Excelle GT sedan (a sibling of the U.S.-market Verano) and the midsize Envision SUV. The Envision, which was recently launched in the United States, has been a big seller for GM in China since its debut early last year.

Baojun is a China-only brand of affordable passenger vehicles. Its sales jumped to 44,320 vehicles in July, up 61% from a year ago. Baojun's 730 minivan and 560 SUV have been its biggest sellers of late: Sales of the 730 were up 23% from a year ago, while sales of the 560 more than tripled, GM said.

Chevrolet sales fell 15% from a year ago, to 30,287. The success of Baojun has cut into Chevrolet's sales to some extent, but the brand is rallying with an all-new version of the Cruze compact sedan, its best-seller in China. GM said it sold more than 14,000 Cruzes in China in July.

Wuling offers a lineup of small, inexpensive vans popular with tradespeople and commercial fleets. Commercial-vehicle sales in China have lagged since the end of the country's building boom, hurting Wuling's results. But the brand's sales increased 6%, to 97,728 vehicles, in July, its second consecutive month of year-over-year growth.

Analysis: Why GM has the right products to drive continued growth and profits

Unlike rival Ford (NYSE: F), which has lost some ground over the last year to lower-cost domestic Chinese competitors, GM has managed to post steady sales gains -- in no small part because its Baojun and Wuling brands compete well with the domestic automakers.

GM's market share in China did fall somewhat, from 14.2% in the second quarter of 2015 to 13.3% last quarter. But its profits from China have remained strong. As in the U.S., a competitive lineup of profitable crossover SUVs is drawing lots of customers toGM'sshowrooms. "GM SUV deliveries [in China] almost doubled in the [second] quarter," CEO Mary Barra said during the company's earnings call last month, "and this continues to be led by two really strong products: the Baojun 560 and the Buick Envision."

The affordable Baojun 560 crossover SUV has been a smash hit for GM in China. Image source: General Motors.

Barra pointed out that sales of Cadillacs, which also carry high profit margins, have, too, been enjoying significant growth in China. Sales at GM's luxury brand were up 16% in China in the first half of the year, Barra said. The brand-new XT5 crossover appears to have accelerated that growth in July, and the upward trend could continue from here as supplies of the XT5 continue to increase.

The upshot: GM's good China story is still on track

For several years now, China has been a big success story for GM. Despite industrywide pricing pressure, GM's profit margin in China held strong at 9.5% in the second quarter. Those profitable SUVs (particularly the Buick Envision) and Cadillacs have helped keep margins strong as competition has intensified at the lower ends of the market -- just as Barra and her team planned.

One-third of the way into the third quarter, it looks like that good story is still on track.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.