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Share Name | Share Symbol | Market | Type |
---|---|---|---|
General Motors Company | NYSE:GM | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.24 | 0.54% | 44.77 | 45.195 | 44.38 | 44.50 | 13,987,637 | 00:59:55 |
The head of General Motors Co.'s China operations said Monday the Detroit auto maker expects to maintain the company's profitability levels in the world's largest light-vehicle market even amid price declines and moderating growth levels.
Matthew Tsien, in an interview, said the company is "well on track for our target" of hitting 9% to 10% margins in China on a continuing basis. By selling a richer mix of vehicles, such as more SUVs and Cadillacs, and implementing cost controls, GM can handle other headwinds, he said.
Mr. Tsien's comments come amid concerns about China's slowing growth rate for light vehicle sales, particularly among foreign nameplates. Foreign car makers sold about four million vehicles in the first quarter, roughly flat with a year earlier, according to the China Association of Automobile Manufacturers.
GM and other forecasters predict sales growth for the wider Chinese market of between 6% and 7% in 2015 compared with the prior year, but the market is getting tougher. To keep pace after losing market share in the first quarter compared with the same period in 2014, GM's main venture joined other auto makers in lowering prices. It slashed prices on 40 models by as much as 53,900 yuan (about $8,700).
Mr. Tsien said the cut should help the company lower discounts, and it came after a long stretch of avoiding price reductions. "We haven't made an adjustment in years."
In a note to investors, RBC Capital Markets auto analyst Joseph Spak said "this is a delicate situation as consumers have become accustomed to discounts." GM needs to keep the black ink flowing, having recently committed to investing $14 billion in China through 2018 to stay relevant in a market it expects to see volume grow to 30 million in sales from 24 million.
Mr. Spak, however, said that China for a long period "disobeyed basic economics being the most fragmented in the world but the highest profit region. Those above-average Chinese auto maker profit margins are likely a thing of the past."
Mr. Tsien said GM has new models, including fresh SUVs, that will help boost margins because those types of vehicles typically cost more than passenger cars. He notes GM's Baojun division is about to launch its 560 SUV, the first of its kind for that brand.
Mr. Spak argues GM's "margin sustainability is reliant on Cadillac gaining further traction to drive [the sales] mix and offset other pricing headwinds." GM is upping Cadillac's game in China with new products, and sales grew 3%in the first quarter in the region—offsetting the brand's 6.1% decline in the U.S., but far behind Audi AG, BMW AG and Daimler AG in China.
In addition to a richer mix of vehicles being sold, Mr. Tsien also expects to squeeze additional costs from structural expenses and its supply chain. He didn't give a specific target.
Write to John D. Stoll at john.stoll@wsj.com
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