Strong China sales undergird GM's earnings
Updated: 2013-02-15 14:04
By Michael Barris in New York (China Daily)
China, the world's biggest market for automobiles, helped propel General Motors Co in the fourth quarter, although the US company posted a weaker-than-expected profit for the period, due to wider losses in Europe and rising costs on its home turf in North America.
The results, however, contributed to a third consecutive money-making year for GM, which is battling Germany's Volkwagen AG to retain its status as the best-selling foreign auto maker in China. The company said adjusted earnings before interest and taxes for international operations - mainly in China but also Russia, India and a few other countries - jumped 25 percent to $500 million in the quarter ended Dec 31.
GM said net income attributable to common stockholders for the quarter was $900 million, or 54 cents a share, up from $500 million, or 28 cents a share, in the fourth quarter of 2011. Excluding charges in the year-earlier period, GM earned 48 cents per share, up from 39 cents. Analysts had projected fourth-quarter earnings, excluding items, of 51 cents a share. Revenue in the quarter rose to a higher-than-expected $39.3 billion from $38 billion.
For all of 2012, GM outsold Volkswagen in China, with record sales of its Wuling minivans. Deliveries at GM and its Chinese joint ventures rose 11 percent to a record 2.84 million vehicles. At Volkswagen, deliveries were up 24.5 percent to 2.81 million. In the fourth quarter, GM deliveries in China increased 15 percent to 754,000.
GM and Volkswagen have increased market share as Toyota Motor Corp, Honda Motor Co and Nissan Motor Co deal with anti-Japanese sentiment tied to a territorial dispute with China. As some 95 auto brands fight for a bigger slice of the pie, the total number of vehicles sold in China in 2013 is expected to top 20 million for the first time.
GM and its partners in China captured 14.3 percent of the market in the latest quarter.
"China's been very critical for GM," said David Zoia, editorial director of Detroit-based WardsAuto, an industry information website. "During the 2009 downturn and bankruptcy, when things were at their worst in North America, China was carrying the ball for GM. The potential that is still there makes it even more critical to them.
"It's a huge market, and one nobody can ignore," Zoia said of China. "All companies have their eyes on it."
China sold 19.1 million passenger vehicles in 2012. By 2020, the number is expected to rise to 33 million, analysts say.
Zoia pointed out that GM achieved its status as the top-selling foreign auto maker in China despite entering the market well after VW. He credited the US company's Chinese joint ventures, which accounted for 9.1 percent of international revenue in the fourth quarter, up from 8.4 percent, according to GM.
Analysts also see GM's performance benefiting from its recent $4.2 billion purchase of Ally Financial Inc operations in China, Europe and South America, doubling the size of the auto maker's unit for customer financing. The purchase allows GM to tailor lending options to reach more customers in markets that account for about 80 percent of its global sales.
While GM has racked up Chinese sales with its Chevrolet and Buick nameplates, it is making a deeper push into the luxury market there. Last year, it introduced China to the Cadillac XTS luxury cruiser, which targets a more upscale buyer. GM has said it will produce some of the vehicles locally through its joint venture partner, Shanghai Automotive Industry Corp, or SAIC.
On Thursday, GM Chief Financial Officer Dan Ammann confirmed for reporters that the company had agreed to reacquire from SAIC a 1 percent stake in their joint venture, returning it to a 50-50 partnership. Terms weren't disclosed. GM had agreed to give SAIC control of the venture in 2009, at the height of the financial crisis, in exchange for a loan and cash.
Tim Dunne, director of Asia-Pacific market intelligence at consumer-research firm JD Power and Associates, said China has been "very important" to GM ever since the company began investing heavily there in the late 1990s.
"At the time, Chairman John Smith said GM needed to do anything necessary to get into China," Dunne recalled. The company is benefiting, he said, from its design and engineering venture with SAIC, the Pan-Asia Technical Automotive Center, which engineers parts for the Chinese market as well as other parts of the world.
"GM is doing well, but you can't let up in the market," Dunne said.
While US auto makers are technically capable of creating significant sales in China, he said, other, uncontrollable factors can affect performance, such as economic upheaval, political issues or an earthquake.
"Nobody wants to lose China," he said. "Once you get out of that market, then things become even more difficult."