GM grabs top spot in China in 2011

However, changes in Chinese policy will likely increase capital expenditure and hurt the automaker's margins in the medium to long term.

By Trefis Jan 16, 2012 1:49PM
Image: China (© Brand X/SuperStock)In spite of the recent slowdown in the Chinese automotive market, General Motors (GM) managed to set a sales record in 2011 with 2.55 million vehicle sales, up 8.3% over 2010. GM's sales in China were supported by strong demand for the Buick Excelle, Chevrolet Cruze, Cadillac SRX and Wuling Sunshine minivan.

In comparison, Ford's (F) China sales totaled 519,390 units, about one-fifth of GM's total. GM's China sales also outpaced those of Honda (HMC) and Toyota (TM), as the Japanese automakers were hobbled by the March earthquake in Japan and floods in Thailand.

We currently have a Trefis price estimate of $26 for General Motors's stock, which is more than 5% above the current market price.


GM Stock Break-Up 
GM, along with its joint-venture partners, introduced 12 new models in China in 2011, including new models for existing brands Buick, Chevrolet, Cadillac and Wuling as well as the Baojun 630, an entry-level passenger car, which was launched in August 2011. GM also continued expanding its production capacity in China to keep up with growing demand. The automaker, together with its partners, started or expanded production at five locations during the year.


Auto sales in China grew by only 2.5% in 2011, the slowest growth in over a decade. The risk to GM's near-term sales growth continues due to the overall slowing of the domestic auto market in China. This is being adversely affected by high levels of benchmark one-year lending rates in the country, as the People's Bank of China (PBC) strives to control inflation. High levels of benchmark rates will make auto loans more expensive for customers, which will likely further decelerate sales in the near term.


Additionally, recent changes in Chinese policy could be a dampener as well. Investors worried last month when China slapped tit-for-tat punitive duties on U.S.-made vehicles imported to China. And just as their fears were allayed by the announcement that only 1.3% of GM's 2.43 million sales in China last year were imported from the U.S., the car maker announced recalls of close to 10,000 vehicles in the country. Vehicle recalls will add further pressure on sales due to the adverse impact on customer perception.


China recently announced that it will end its seven-year policy to attract foreign investments by the end of this month to promote "healthy" competition and protect local manufacturers. This puts at risk GM's plans to boost production capacity by 25% to 40% over the next two years in the country.


While we expect that GM will continue with its expansion plans, the changes in Chinese policy will likely increase capital expenditure and hurt the company's margins in the medium to long term.


See our complete analysis for GM.

Tags: FgmHMCTM
0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

114
114 rated 1
280
280 rated 2
473
473 rated 3
639
639 rated 4
637
637 rated 5
662
662 rated 6
640
640 rated 7
498
498 rated 8
287
287 rated 9
121
121 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
COPCONOCOPHILLIPS9
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
KOGKODIAK OIL & GAS Corp9
CVXCHEVRON CORPORATION8
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.