GM to Build Cadillac Plant in China

Zacks

General Motors Company (GM) will start building a $1.3 billion plant in Shanghai’s Jinqiao zone in China from next month that will manufacture its popular Cadillac luxury model. With this, the automaker intends to capture the potential luxury market in China, which is dominated by European brands.

GM has already received regulatory approval for building the new plant. It plans to roll out a locally made Cadillac from the plant, each year through 2016. The company aims to produce 150,000 vehicles annually from the plant. In February, General Motors began producing Cadillac XTS sedan at a plant in Shanghai.

In March, GM revealed plans to build four new plants in China in order to boost annual production capacity to 5 million vehicles and triple its exports from Chinese plants by 2015. GM and its joint venture partners in China plan to invest $11 billion in the country by 2016 as part of their major expansion program.

Last year, GM built two plants in China, increasing the production capacity by 20%. With the addition of four new plants, the production capacity will increase further by 30% and vehicle exports are expected to go up to 300,000 units from 100,000 units projected for this year. Currently, the company owns 13 assembly plants in China.

Apart from GM, Ford Motor Co. (F) has embarked upon an aggressive expansion plan in China that includes plans to triple its lineup in China by introducing 15 models, including the Kuga small sport utility vehicle by 2015. Currently, the company sells seven models in the country.

In order to develop new models, Ford will build new plants, raising its capital spending to about $6 billion annually by mid-decade from $4.3 billion in 2011. In order to keep pace with the expansion, Ford also plans to double its workforce by hiring 1,200 employees by 2015.

Ford anticipates global sales to expand by 50% to 8 million vehicles by 2015 given the potential growth in Asia, mainly China and India; and rising demand for small cars. The automaker anticipates small cars to account for 55% of the total sales by 2020, compared with 48% presently. One third of the small car sales are expected to come from Asia.

According to the China Association of Automobile Manufacturers (:CAAM), total vehicle sales in China rose 13.4% to 1.8 million units in April compared with 13.2% to 5.4 million units in the first quarter of the year and 4.3% to 19.3 million vehicles in 2012.

Passenger vehicle (cars, multipurpose and sport- utility vehicles) sales rose 13.0% to 1.4 million units while commercial vehicle sales scaled up 15% to 400,300 units in April. For the first four months of the year, passenger vehicle sales rose 16.2% to 5.9 million units while total vehicle sales escalated 13.2% to 7.3 million units, according to CAAM.

Auto sales in the world’s largest market rose despite a fall in economic growth to 7.7% in the first quarter of the year from 7.9% in the previous quarter. The growth can be attributable to government-backed investments and easier bank finance.

Ford Motor and its joint ventures in China posted an impressive 37.0% gain in sales to 75,331 vehicles driven by strong demand for Ford Focus and new Kuga models. However, Japanese automakers continued to be the losers due to the political conflict between Beijing and Tokyo over disputed islands in the East China Sea. Sales of Japanese brands, including Toyota Motor Corp. (TM) and Honda Motor Co. (HMC), fell 4.9% year-over-year during the month.

GM, a Zacks Rank #3 (Hold) stock, reported a 28.0% fall in earnings to 67 cents per share in the first quarter of the year from 93 cents in the same quarter of 2012 (all excluding special items) due to lower earnings generated from the company’s all geographic operations except Europe. Despite this, the automaker’s earnings exceeded the Zacks Consensus Estimate by 11 cents per share.

Net earnings fell 31.3% to $1.1 billion from $1.6 billion in the first quarter of 2012. Including net loss from special items, earnings were $0.9 billion or 58 cents per share in the quarter compared with $1.0 billion or 60 cents a year ago.

Revenues in the quarter slid 2.4% to $36.9 billion, despite a 3.6% rise in retail unit sales to 2.4 million vehicles globally. It was higher than the Zacks Consensus Estimate of $36.4 billion.

General Motors is gearing up for more than 40 major vehicle launches in 2013 across the globe in order to drive sales and revenues. In addition, the company expects its European results will improve further based on its cost reduction measures.

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