Improved margins in China help GM's results

Updated: 2015-10-22 10:08

By PAUL WELITZKIN in New York(China Daily USA)

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Despite a sluggish sales environment in China, General Motors Co managed to improve its third-quarter profit margin in the mainland by selling more expensive vehicles.

General Motors on Wednesday reported net income of $1.4 billion, or 84 cents a share. The results were down slightly from a year ago, but topped Wall Street expectations as profit in North America helped offset losses in Europe and South America.

GM's share of joint-venture profit in China fell to $463 million from $484 million a year ago, but the company's profit margins edged up to 9.8 percent from 9.6 percent. GM managed to keep results stable despite a struggling auto market in China, the world's largest, by boosting sales of more expensive sport utility vehicles (SUVs) and luxury cars.

"Even though passenger car sales are struggling, there has been a shift in China as consumers are seeking out SUVs," David Whiston, auto analyst with Morningstar Inc, told China Daily.

SUVs generally have higher margins than cars and other automakers are also picking up on the preference for SUVs in the Chinese market, noted Whiston: "Ford is also pursuing that strategy as they have more SUVs coming into the market like the Everest."

Fox Business News said analysts at JP Morgan said GM showed "surprising resilience" in China, adding that a stronger mix of profitable SUVs and Cadillacs is offsetting volume and pricing headwinds.

GM's CFO Chuck Stevens said China "has not fallen off a cliff" during the quarter, according to Reuters.

GM has managed to maintain profit by selling more expensive vehicles. The company recorded slower sales of the less expensive Chevrolet cars and Wuling small commercial trucks. However, Buick sold 238,000 cars and SUVs in the quarter, up from 221,000 a year earlier according to Bloomberg. GM builds and sells more cars in China than in the US. The Buick brand is very popular in China.

After years of rapid growth, car sales in China began to pull back this year as slower-than-expected economic growth and a selloff in the Chinese stock market combined to cool demand. Whiston's firm – Morningstar - predicted in a September research report that auto sales in China would stagnate for as long as the next two years before returning to growth. Morningstar expects 2015 passenger-car sales in China to be flat to down 3 percent.

"Anyone waiting for sales to go back to the growth rates of previous years is going to be very disappointed," said Whiston.