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GM February Sales Remain Dull in China, but Outlook Is Bright

- By Mayank Marwah

General Motors' (GM) February sales in China improved slightly compared to a year ago. The sales volume was led by crossovers and MPVs, which were an integral part for the carmaker during the month. Around half of the company's deliveries in China were that of crossovers and MPVs in February. The Cadillac XT5 was among the key highlight for the month as it recorded double-digit growth for the 12th consecutive month. The Baojun 510 SUV, which was launched on Feb. 20, was a big hit with deliveries exceeding 6,000 units in the final eight days of the month. SUV sales contributed to Baojun brand's record deliveries.

A look at the numbers

The company's sales in China went up a meager 0.4% in February. The carmaker, along with its Chinese joint ventures, sold 246,730 vehicles in the country last month. Although its luxury brand Cadillac and the Baojun put on a good show, the positive impact was offset by challenges faced in other areas, including an incentive cut by the Chinese government.

In the first two months of the year, GM's sales were down 15% from the same period a year earlier. While the first two months have not been good for the company, there are favorable signs suggesting the automaker's strategic shift toward strengthening its portfolio of premium vehicles and SUVs in China will reap benefits in future.

The Detroit automaker's Cadillac and Baojun brands posted record numbers in February in China. Cadillac sales went up 89.6% to 9,034 units. Baojun sales expanded 38% compared with a year ago period. Wuling brand deliveries improved 2.3%.

"The expanding SUV portfolio has helped us maintain our growth momentum," GM China President Matt Tsien said. "The upcoming launch of the Chevrolet Equinox will further enhance our competitiveness in the fast-growing midsize SUV segment."

The Buick Envision crossover maintained its position as the best-selling "global" SUV from a foreign automaker in China in February for the fourth consecutive month. The recently revamped Buick GL8 minivan experienced a stunning sales growth of 80% in February. The midsize Chevrolet Malibu sedan also had a decent month.

It is evident from the numbers that General Motors is performing best with its larger vehicles and premium cars. This is a positive development for the company as these vehicles provide greater profit margins compared to smaller cars.

What led to the weak numbers?

In an effort to reduce pollution, the Chinese government provides a tax incentive for the purchase of vehicles with engines smaller than 1.6 liters. The government cut the incentive in half at the end of last year however. As such, sales of the qualifying vehicle saw substantial slowdown. In January, sales of these cars were down 24%.

General Motors is not the only auto manufacturer suffering from the incentive cut. Fellow peers Ford (NYSE:F) and Toyota (TM) are also experiencing declines. In addition to the incentive cut, Chinese New Year was another factor in softer sales through the first two months of 2017.

Looking ahead

The growing popularity of SUVs and luxury vehicles is expected to work in favor of General Motors. Although the largest American automaker was a bit slow in expanding its SUV and crossover lineup in the mainland, it is not too late to benefit from the changing preferences of Chinese consumers. The automaker is gradually catching up with the lauch of the Envision, XT5 and Baojun 560 crossovers. These vehicles have done exceptionally well since hitting the road. General Motors has plans to introduce the all-new 2018 Equinox, the larger Chevy Traverse and Buick Enclave later in the year or early next year. The company is slated to launch 18 new and refreshed models in 2017 to bolster growth in China, which happens to be its largest retail market.

Disclosure: I do not hold any position in the stocks mentioned in this article.

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