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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