General Motors Profits From Sales in China, Looks For Same at Home

General MotorsGeneral Motors (GM) still looks for the golden key to consistent profits, at home and abroad. The company enjoys business from Chinese customers. However, GM wants the same sales numbers on its home turf, the U.S. China, a rising economic power, shows strong growth. In the U.S. automobile market however, profits wax and wane.

Whenever a company can fly past its previous monthly sales record by double digits as the company did in China this past January, executives and investors have cause to celebrate. GM and its partnerships reported a sales increase of 12 percent to nearly 350,000 automobiles. However, GM and its investors need to pay attention to some key issues.

First, while GM’s sales remain impressive, its share of the Chinese market has slowed. This is a result of re-emerging Japanese automakers. China’s regional Asian neighbor is recovering from more than a year of lower sales to China due to a territorial dispute.

Another topic for scrutiny is GM’S plans to redesign, or replace 90 percent of its vehicles by the end of 2016. Though this is a costly short-term move, it can set the company up for long-term, global success. Along with redesigning cars, GM should focus on its Cadillac lineup. Cadillac has sold well, especially in China, offering significant profits. Sales in China last month were up a whopping 266%. The company looks for its Chinese Cadillac sales to triple by 2015. Decision makers need to watch this product line’s performance closely.

Unfortunately for General Motors, its sales and profits at home were lower than in China. Meanwhile, the company looks for explanations. One offered by analysts and dealership managers is the inclement weather across much of the country. People did not want to spend a Saturday afternoon, driving from home, to stand outside at a car dealership, in the middle of a blizzard. However, the cold did not affect luxury vehicles sales, which were up the same month.

The car maker is tackling its U.S. sales slump with an aggressive sales campaign. This month, GM sponsors a nationwide Presidents Day sale until February 28 through dealerships around the country. The sale offers discounts exceeding $7,000 on the 2014 Chevrolet Silverado and up to $7,500 on the 2014 GMC Sierra. An additional frustration for GM is the fact that the discounts are for trucks introduced to market only eight months ago. If General Motors can reach the needed sales at home, profits similar to those in China look possible.

If there is a silver lining to these high discounts, it is that they have allowed GM to remain competitive with archival Ford. Another positive for GM is its significant increase in the average final transaction price. According to research firm Kelley Blue Book, the average transaction price on the Silverado in January jumped nearly 12 percent to around $40,575, while the transaction price for the Ford F-150 remained around $40,672 for the last year. The catch-22 for GM is that these discounts hurt both themselves and the competition in the already tight automotive sales industry.

What does all this mean for stakeholders? General Motors is looking to invest in new and improved vehicles. Meanwhile, stock has struggled to solid profits from operations and sales in the last several years, and is currently trading sideways. While sales have been on the rise, investors have had mixed feelings about recent earnings. The online periodical Wall Street Cheat Sheet offers investors the same advice whether General Motors is seeking profits at home, in China, or anywhere else; the classic “wait and see” line.

By Ian Erickson

Motley Fool
Wall Street Cheat Sheet