General Motors' 2019 China Sales Plummet, Headwinds To Stay

General Motors’ (NYSE:GM) vehicle sales in China recorded the biggest-ever decline in 2019 amid a lackluster Chinese economy and U.S.-Sino trade tensions. Discouragingly, the company expects the challenges to continue in 2020 as well. General Motors currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

General Motors' 2019 China Sales Unimpressive

The leading U.S. automaker — which has a strong presence in China — had sold 3.09 million vehicles in the country in 2019, reflecting a decline of more than 15% year over year. Markedly, this is the second consecutive year of General Motors’ China vehicle sales decline.

Sales for the Buick brand totaled 850,007 units, down around 14% year over year. Chevrolet sales came in at 418,000 units, declining around 20% year over year. Local brands Wuling and Baojun also experienced sales decline, having recorded 1,003,611 and 608,269 units, respectively.The only bright spot for the company in China was the Cadillac brand, recording an all-time high sales of 213,777 units, depicting a 3.9% uptick from 2018.

Notably, weak consumer sentiment in China amid slowing economy and tariff woes has impacted the company’s bottom line. While it is yet to release full-year results, General Motors’ profit in China had decreased to around $893 million during the first nine months of 2019 from $1.7 billion recorded in the corresponding period of 2018.

No Relief in Sight

Vehicle sales in China have become increasingly important for General Motors lately, with the company downsizing other international operations including Europe, India and other countries. For years, General Motors banked on China’s huge vehicle market. It views the country as a reliable profit generator that offers cushion against cyclic slowdown in more mature markets in Europe and the United States.

However, the firm’s China sales have been contracting of late. Uncertainty with regard to China’s economic situation prompted people to tighten purse strings, in turn hitting U.S. auto bigwigs like General Motors and Ford (NYSE:F) . After witnessing double-digit sales decline in China in 2019, General Motors warned that the China business is likely to face challenges this year as well.

Nonetheless, to revive its position in the country, the firm is focused on improving operational efficiency and bolstering its product line-up in the country. General Motors is on track to introduce at least 10 electrified or new-energy vehicles by 2020 in China. Apart from established carmakers like Toyota, Volkswagen (DE:VOWG_p) and others, the company has to compete with local players like NIO Inc. (NYSE:NIO) , BYD Company Limited and Xpeng. On top of that, with Tesla (NASDAQ:TSLA) expanding its presence in China with the Shanghai Gigafactory, competition is certainly rife.

China Auto Sales Woes to Linger

Auto sales slump in China, which is the world’s largest car market, is refusing to die down. In more than two decades, vehicle sales had slid for the first time in China in 2018. According to data provided by China Association of Automobile Manufacturers (“CAAM”), vehicle sales are expected to dip 8% year over year in 2019. For 2020, CAAM projects auto sales to drop again by 2% year over year, which would mark the third consecutive year of sales decline.

Affected by the sluggish Chinese economy, automakers are reeling from declining demand for cars in China. Slowing economy and trade-war tensions have impacted consumer sentiment, which is crucial for the sale of big-ticket discretionary items like automobiles. In addition to a weak economic outlook, tighter terms for vehicle financing and increasing popularity of ride-sharing platforms are also likely to weigh on car sales.Automakers are waiting with bated breath to witness a rebound in China’s auto market.

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