General Motors Stays on a Profitable Course in China

By Markets Fool.com

General Motors (NYSE: GM) said that its sales in China rose 5.7% to 345,733 vehicles in October, its best-ever result for the month. Year to datethrough October, GM's sales in China are up 8.6% from the same period in 2015.

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GM China sales: The raw numbers

Brand Oct. 2016 Sales Change vs. Oct. 2015
Cadillac 12,502 117.6%
Buick 105,071 3.4%
Chevrolet 52,195 2%
Baojun 67,189 30.2%
Wuling 108,760 (6.9)%
GM Total 345,733 5.7%

Data source: General Motors.

The made-in-China Cadillac ATS-L has a longer wheelbase than its U.S.-market ATS counterpart. That gives more legroom in the back seat, an important factor in China. Image source: General Motors.

What worked for GM in China last month

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The good news was quite good: Sales of some of GM's most profitable products were very strong last month.

Cadillac sales more than doubled, giving the luxury brand its fourth month in a row in which its sales in China increased by more than 50%. The star of the show has been the new XT5 crossover, with over 4,700 sold in China last month. (That may not sound like a lot, but for comparison, GM sold 4,989 XT5s here in the U.S. last month.)

The XT5 isn't the only Cadillac doing well in China: GM said that combined sales of the ATS-L and XTS sedans were up more than 70% year over year. The ATS-L is a China-only version of the compact ATS sedan with a lengthened wheelbase for extra rear-seat legroom. It has been a strong seller since its debut.

Buick's Envision SUV has been a bona fide hit for GM in China since its debut last year. Its success continued in October as sales grew 28% to 22,061 units.

The new Baojun 310 sold over 11,000 units in October, its first full month on the market. Image source: General Motors.

GM's Baojun brand also had another strong month. Baojun is a low-cost brand created to compete with domestic Chinese automakers. Its products include the 560 crossover SUV, the 730 minivan, and a new hatchback called the 310. The 560 has been a big seller since its debut last year.

What isn't working: GM's commercial vans are suffering

GM's Wuling brand builds small, inexpensive commercial vans. It has had a tough time over the last year as China's building boom has tapered off. While rival Ford (NYSE: F) is enjoying strong sales of its Transit commercial vans in China, Wuling plays at a lower-cost point in the market where sales have been particularly weak.

The Wuling Rongguang is a small, inexpensive van designed for commercial use. Image source: General Motors.

Analysis: GM continues to offset pricing pressure with a profitable product mix

GM's equity income from its joint ventures in China was roughly flat from a year ago at $459 million in the third quarter, despite the fact that GM's sales in China were up 17.4% over the same period. The problem: GM's pricing is under pressure from low-cost domestic Chinese competitors. That squeezed GM's profit margin in the region, which was down to 8.7% last quarter from 9.8% a year ago.

It could have been worse. CFO Chuck Stevens said that strong sales of Cadillacs and the Baojun 560 and Buick Envision crossover SUVs, all strongly profitable products, helped GM offset those pricing pressures to some extent last quarter. All of those products posted strong sales gains again in October, suggesting that GM is on track for another solid quarter in China.

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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.