GM to Build Four Plants in China

Zacks

General Motors Company (GM) 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 the 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.

Overall passenger vehicle sales in China slowed down in March compared to the first two months of the year, mainly due to the stricter regulation imposed by the government on vehicle ownership aimed at controlling increasing pollution and traffic congestion in the country. According to the China Association of Automobile Manufacturers (:CAAM), passenger vehicle (cars, multipurpose and sport- utility vehicles) sales rose 13.3% to 1.59 million units in March compared with a 19.5% increase in Jan–Feb this year.

Passenger vehicle sales grew 17.2% to 4.42 million units in the first quarter of the year, which is higher than 7.1% growth registered in 2012. Thanks to the steep discounts that kept passenger vehicle sales at a higher level in the world’s biggest auto market. Total vehicle (passenger vehicles, buses and trucks) sales grew 13.2% to 5.4 million units in the first three months of the year compared with 4.3% to 19.3 million vehicles in 2012.

Considering the first quarter of the year, General Motor’s sales increased 9.6% to 816,373 vehicles, overtaking Volkswagen AG (VLKAY), led by burgeoning demand for its Buick lineups. Volkswagen reported a 21% rise in sales to 770,000 vehicles in the quarter. In the same period, Ford’s sales went up 54% to 186,000 vehicles.

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), fell 17.8% during the month.

GM, a Zacks Rank #3 (Hold) stock, posted a rise in profits to $0.8 billion or 48 cents per share in the fourth quarter of 2012, missing the Zacks Consensus Estimate by a penny, compared with $0.7 billion or 39 cents in the same quarter of 2011. The results excluded a net gain from special items of $0.1 billion or 6 cents in the 2012-quarter and a net loss from special items of $0.2 billion, or 11 cents in the 2011-quarter.

Revenues in the quarter scaled up 3.4% to $39.3 billion, which was higher than the Zacks Consensus Estimate of $38.6 billion. Unit sales escalated 4.2% to 2.3 million vehicles. The automaker occupied a market share of 11.5% during the quarter, down from 11.6% in the year-ago quarter.

GM expects to boost its top-line in 2013 with the help of new vehicle launches. At the same time, the company believes cost control measures will boost its bottom line growth. It expects 2013 capital expenditures to be at the 2012-level.
 

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