GM Channels 20th Century Toyota With $11 Billion China Bet
Comment of the Day

April 30 2013

Commentary by Eoin Treacy

GM Channels 20th Century Toyota With $11 Billion China Bet

This article by Keith Naughton for Bloomberg may be of interest to subscribers. Here is a section
GM's factory build-up will give it 17 assembly plants in China, more than the 12 it has in the U.S. GM's dealer count in China will also surpass the 4,343 showrooms it has in its home market. GM has been selling more vehicles in China since 2010.

While China's economic growth slowed to 7.7 percent in the first quarter, automakers still see it as an attractive market. Asked why GM is making such a large bet on China, Bob Socia, GM's top executive in the country, scoffed at the idea of a gamble. “Big bet?” he said. “We're confident about playing here in China. We're here for the long term and you've got to lead and be strong in your commitment. We're very bullish.”

Even more bullish than others. While LMC forecasts the market reaching 32 million vehicles by 2020, GM predicts it will grow to 35 million by 2022. That's up from 19.4 million last year. China in 2009 surpassed the U.S. market, where dealers sold 14.5 million cars and light trucks last year, the most since 2007. The U.S. record is 17.4 million in 2000.

Eoin Treacy's view GM has reinvented itself following is bankruptcy and is now aggressively targeting the world's largest car market. Looking towards the next decade, the outlook for miles driven in the USA is likely to deteriorate further as driving practices change. The continued growth of the middle classes in the world's population centres suggests a tailwind for auto manufacturers.

In 2012 GM derived 40% of revenues from outside the USA. Ford's overseas revenues were 35% of its total. They share a high degree of commonality, finding support in the region of the 200-day MA from March. Sustained moves below their respective trend means would be required to question medium-term scope for additional upside.

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