Volkswagen Battles Back in China and Overtakes General Motors

By Markets Fool.com


GM's Chevrolet Volt in China. Image source: General Motors.

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Sure, General Motors (NYSE: GM) generates a majority of its profits right here in America, but it sells more cars in China than any other country. And despite its massive success there, where it remains a perennial challenger for the best-selling foreign automaker, GM hasn't been able to keep its largest competitor at bay. Volkswagen (NASDAQOTH: VLKAY), despite its global diesel-emissions scandal, has taken the top spot in China yet again.

Just the facts

Volkswagen Group outsold General Motors last month in China, delivering nearly 286,000 vehicles, which was a 16% improvement from July 2015. Much of that growth was thanks to its namesake Volkswagen brand, which recorded sales of more than 210,000 units, a 17% gain from the prior year. Meanwhile, its Skoda and Audi brands delivered sales gains of 16% and 10%, respectively, to 21,400 and 45,454 vehicles.

If you're keeping track, that puts Volkswagen's total through the first seven months at 2.14 million vehicles, an 8% increase over the same time frame last year. General Motors, on the other hand, has managed to outsell Volkswagen only in June this year, after beating out the German rival for the full year in 2015.

Detroit's largest automaker wasn't outdone by much, though. GM and its joint ventures delivered a company record for July as they tallied sales of 270,529 units in China. That was enough to top 2 million deliveries through the first seven months.

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It was a strong performance compared to the prior year, with deliveries increasing 18%. Though, it's fair to note that the year-over-year comparisons are against a really weak prior-year figure as new-vehicle sales slumped in China last summer before the government established a tax break on new-vehicle purchases that will last throughout the remainder of 2016.

Bright spots

One of the bright spots for GM's sales data in China last month was Cadillac. GM's luxury lineup sold 90% more vehicles compared to the prior July as demand for its ATS and XTS sedans remained strong.

Meanwhile, the XT5, which is a new product for GM in China, was the brand's best-seller globally by a wide margin. Sales of the XT5 checked in at 8,130 last month, with the nearest Cadillac product failing to reach 5,000 in sales. The XT5's success has helped push GM's deliveries in China 24% higher year to date.

A story that has been critical to GM's success in China -- the rise of its Baojun brand -- continues to gain traction. Baojun, which is a no-frills, low-cost brand, posted a sales gain of 61% compared to the prior year, to 44,320 units. Baojun was one of the key reasons GM was able to top Volkswagen in 2015, but even with its strong gains this year, Volkswagen has managed to edge out its Detroit competitor.

Adapt or die

The next few years will be very telling in China as the market growth shifts from massive tier 1 cities such as Beijing to smaller tier 3 and 4 cities, which are still recording double-digit sales growth. It's the growth in those lower-tier cities that has lead GM's management to estimate total sales will hit 30 million per year in China by the end of this decade, up from 24.6 million during 2015.

Despite GM's overall success in China, it appears that taking the sales crown from Volkswagen will mean adapting to selling in the smaller cities and pouring investment into its low-cost Baojun brand -- two factors GM is well in the process of achieving.

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Daniel Miller owns shares of General Motors. 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.