Detroit automakers General Motors (GM, Financial) and Ford (F, Financial) are witnessing sales hikes in China despite the economic slowdown.
The Chinese economy is passing through a dull phase, which is adversely affecting overall demand for vehicles. However, the country seems to have a soft spot for SUVs, which is evident from its healthy sales volume. The Chinese government has also introduced a tax cut program to boost vehicle sales. This showed up in the automakers’ sales numbers in October. Here’s the latest on General Motors' and Ford’s journeys in the world’s hottest car market.
By the numbers
China has been the global auto market leader for quite a few years now, and for automakers like Volkswagen (VLKAY, Financial), General Motors and Ford, it is the key market for growth. In order to revive sales, the Chinese government recently trimmed the purchase tax from 10% to 5% on vehicles having a 1.6-liter engine or lower.
General Motors saw sales increase by 15% in October. The top American automaker, in collaboration with its joint venture partners, sold a record 327,037 vehicles in the mainland. Buick sales surged 42%. Cadillac and Baojun brands sold 5,757 and 51,581 units, an increase of 23% and 113% respectively. In contrast, Chevrolet and Wuling brands saw sales plunging 8.4% and 6.8% to 51,173 and 116,786 vehicles. However, this did not affect its overall growth for October.
Crosstown rival Ford witnessed a sales gain of 7% by selling 95,185 vehicles in October as compared to last year. The carmaker is capitalizing on the growing inclination toward SUVs in China by building a solid SUV lineup. The combined sales of Ecosport, Edge and Explorer surged 15% year on year. Ford Kuga sales went up 9% while Mondeo improved 6%. The overall sales of Ford in the country totaled 884,073 for the first 10 months of the year.
The road ahead
China is a growth market with white hot demand for vehicles. Evidently, global carmakers are working out ways to solidify their position and cement their dominance. There are several factors including rising demand for SUVs, low car ownership rate and auto subsidies that are in favor of the auto industry.
General Motors generated $500 million in equity income from China, led by the SUV segment. Though the trucks division in the U.S. generates the maximum revenue for General Motors, China offers massive opportunity and is expected to be the primary growth driver. GM China president Matt Tsien said, “GM is well-positioned to capture the growth opportunities in the SUV, MPV (multipurpose vehicles) and luxury segments, and our new products are gaining market share.”
The company intends to launch 26 new or revamped vehicles in the MPV, SUV and luxury segments in China. This is estimated to boost the company’s growth over the next five years.
Ford, too, is leaving no stones unturned to increase its penetration in the Chinese market. It announced that it would pour in approximately $1.8 billion in the next five years for research and expansion in China. The company is putting in an effort to revive sales in the market by modifying vehicles to suit customer preferences. The automaker proposes to widen its portfolio of hybrid, electric cars and plug-in hybrid in China in the coming years. Ford is scheduled to introduce the C-MAX Energi, a plug-in hybrid, and the Mondeo conventional hybrid in the country in 2016.
Last word
October was a strong month with higher showroom footfalls for both General Motors and Ford. The numbers indicate a bright spot for the auto market, which was otherwise struggling owing to the economic slowdown. The supportive policies introduced by the government suggest better days for automakers. Overall, the outlook for the last quarter appears quite optimistic for both General Motors and Ford.
Disclosure: I have no positions in any stocks mentioned in this article.
