General Motors (NYSE: GM) said its sales in China fell 1.9% in April on the lingering effects of a reduction in a government tax incentive for buyers of smaller vehicles.
Continue Reading Below
Through the first four months of 2017, GM's sales in China are down 4.5% from the same period in 2016.
About that tax incentive
The Chinese government offers a tax break to buyers of vehicles with engines smaller than 1.6 liters. It's part of an air-quality-improvement initiative: The idea is that smaller engines typically burn less fuel, producing less pollution. That tax break used to be larger, but it was cut in half as of January 1 of this year.
That cut was widely expected in China, and those expectations led to a boom in sales of vehicles with smaller engines in late 2016. Now, sales of those vehicles are slumping somewhat. That has put pressure on GM's Chevrolet and Buick brands in particular as both sell lots of smaller-engined vehicles in China.
A premium minivan? The new Buick GL8, shown here in top-level Avenir trim, is selling well in China. Image source: General Motors.
Continue Reading Below
How GM's brands fared in China in April
While GM's overall China sales were down somewhat from a year ago, it had good success at both ends of the retail market.
GM's push to establish the Cadillac luxury brand as a serious contender in China is paying dividends. The brand's sales rose 98% from a year ago, to almost 14,000 vehicles -- Cadillac's 14th consecutive month of double-digit percentage sales increases. (That may not sound like a lot, but consider: GM sold 12,300 Cadillacs in the U.S. last month.) Big sellers in China: The XT5 crossover SUV; a China-only longer-wheelbase version of the compact ATS sedan, called the ATS-L; and the big XTS and CT6 sedans.
The new Baojun 510 is a small, affordable SUV that competes with domestic Chinese brands. It's a hit: GM sold over 20,000 of them in April. Image source: General Motors.
At the other end of the price scale, sales at GM's affordable Baojun brand soared to almost 60,000 units from about 38,000 a year ago. The new small 510 SUV is emerging as a hit for GM in China, selling over 20,000 copies in only its second full month on the market. Also doing well: Baojun's 730, a small minivan, with over 18,000 sold in April.
GM's more mainstream brands didn't fare quite as well, largely because of that tax-related drop in sales of smaller-engined vehicles. Sales at Buick dropped 15% to just over 84,000. But larger Buicks did well: GM sold over 15,000 Envision SUVs and over 12,000 examples of the GL8, a premium minivan. The GL8 was revamped last fall, and sales of the new model have been strong -- up 81% from a year ago in April.
It was a similar story at Chevrolet. Overall Chevrolet sales fell 10% to about 32,000, but sales of the Malibu sedan -- Chevy's top-of-the-line sedan in China -- jumped 32%. GM is in the process of rolling out the all-new 2018 Chevy Equinox in China, a model that seems well-positioned to become another big seller for GM in the world's largest auto market.
Wuling's new Hong Guang S mini-minivans have sold briskly. Image source: General Motors.
GM's Wuling joint venture has long built small vans for commercial customers. That market has shrunk as China's building boom has faded, leading GM to revamp Wuling as a maker of affordable minivans for young families. Overall sales fell 16% to about 82,700 vehicles in April, but Wuling's new Hong Guang S minivan family sold over 33,000 examples. A new SUV joined the lineup in April.
How this market is likely to affect GM's profits
GM's overall sales in China fell 5% in the first quarter of 2017, and GM (and other global automakers) have faced increasing pressure on pricing from low-cost domestic Chinese automakers, especially at the lower-priced ends of the SUV segments. Despite those pressures, GM's joint ventures generated $504 million in equity income in the first quarter, down less than 3% from the year-ago period -- thanks to good sales of more profitable products like the Envision, the Malibu, and the Cadillacs.
Those products continued to do well in April, and GM is in the process of rolling out more products (like the new Equinox) that should help boost both its overall sales and its margins in China. Long story short: The sailing in China's market may be a bit rough, but GM remains on course.
10 stocks we like better than General Motors
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now...and General Motors wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of May 1, 2017.