beyondbrics

Europe might be in the doldrums and the US is still just muddling through. But thank goodness for China. The world’s biggest auto market was the sole bright spot in General Motors’ third quarter earnings results.

But can the good times last?

Unveiling third-quarter results on Wednesday, the Detroit carmaker, second globally by sales after Toyota, said in spite of a marked slowdown in growth in China’s auto market, the company has managed to increase sales and market shares thanks to the steady demand for its Buicks and Chevrolets in the country.

Sales in China – which account for 36 per cent of group sales – were up 9.3 per cent to 620,000 units for the third quarter compared to the same period the year before.

Its market share rose from 13.4 per cent in Q3 last year to 14.1 per cent this year, Jim Cain, a spokesperson for GM, told beyondbrics.

“There has been some softening [in the wider market] after a torrid period of growth but it remains a very attractive market because of the country’s strong economic growth,” he said.

The strong performance in China helped GM offset wider problems in Europe and the US. It reported third-quarter net earnings of $1.7bn, or $1.03 a share, down from $2bn last year but slightly above analysts’ estimates.

Given China’s growing “breadwinner” status in the group, it’s little wonder that it’s been dubbed “the crown jewel in the GM universe” by GM’s chief executive Daniel Akerson.

Can the love affair continue?

Earlier this week, Kevin Wale, head of GM’s China operation, reiterated the company’s plans to double its annual sales in the country to 5m vehicles by 2015.

“We will have some down years and we will have some up years, but we think the fundamentals are still very strong,” he told Reuters.

“There is still going to be substantial growth in the China market on a trend basis and we still think it will grow between some 7 to 10 percent per year in the foreseeable future.”

As this piece from the New York Times pointed out, GM’s success in China has been helped by the fact that Chinese consumers do not have the scepticism about the company that is commonly seen in the United States. From the article:

Buick is the company’s star. Favored by China’s last emperor, Buick is perceived as sumptuous and stylish, a contrast with its staid image among many Americans. G.M. sold nearly half a million Buicks here last year, almost five times the brand’s sales in the United States.

“I was so fascinated by the shape of this car,” said Xu Tianpei, who bought a Buick Regal at the Yongda dealership in Shanghai for 230,000 renminbi ($34,000), including taxes and insurance. “

But with bank credits in China drying up, property prices falling and GDP growth slowing as Beijing’s efforts to rein in inflation begin to have their desired effect, GM might do well to take a look at how things in another one of its key emerging markets have played out.

Third-quarter sales in Brazil – which account for half of the group’s South American sales – fell 1.4 per cent in Q3. While GM blamed the drop on weak product offering (“Our vehicle lines there are older,” said Cain), the wider macro-economic environment no doubt also played a role.

Demand for cars in Brazil is slowing sharply in light of the global economic crisis and a government clampdown on easy auto loans. Sales of cars and light commercial vehicles in October dropped 8.3 per cent from the year earlier period to 263,750, according to auto manufacturer association Anfavea.

New middle class consumers in Brazil who have now bought a car are now probably not in a hurry to buy a new one. Will Chinese big spenders go the way of their Brazilian counterparts? It’s a question GM should think about.

Additional reporting by Samantha Pearson

Related reading:
GM head: China central to strategy, beyondbrics
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China car sales stay in the fast lane, FT
China’s car sale growth slows – from frenzied to frantic, beyondbrics