GM’s Chinese Operations Don’t Matter As Much As You Think
4
Sponsored Links
Seemingly everyone has accepted as common knowledge that the Chinese market is the most important component of General Motors’ bottom line in the short and long terms. In fact, many so-called industry watchers and analysts have concluded that GM would be in big trouble today if it weren’t for its success in China. With eyebrow-raising and record-setting sales figures like these, we completely understand where the ideas are coming from. But reality is actually quite different. How different? Well, consider that China only makes up roughly 10 percent of GM earnings and revenue.
For the second quarter of 2015, General Motors posted an Earnings Before Interest and Taxes (EBIT) adjusted of $3.1 billion, and $349 million of that came from GM International Operations, which includes China along with Australia, New Zealand, Korea, Thailand, Indonesia, and other markets. So, if GMIO was solely comprised of China, then the $349 million would only make up 11 percent of the total EBIT-adjusted.
General Motors EBIT By Operating Segment - Q2 2015
Dollar amounts in millions of USD| Operating Segment | Q2 2015 / Q2 2014 | Q2 2015 | Q2 2014 | H1 2015 / H1 2014 | H1 2015 | H1 2014 |
|---|---|---|---|---|---|---|
| Total Operating Segments | +101.34% | $3,165 | $1,572 | +153.42% | $5,479 | $2,162 |
| GM North America (GMNA) | +100.72% | $2,780 | $1,385 | +155.51% | $4,962 | $1,942 |
| GM Europe (GME) | +85.25% | $(45) | $(305) | +51.78% | (284)$ | $(589) |
| GM International Operations (GMIO) | +10.79% | $349 | $315 | +26.98% | $720 | $567 |
| GM South America (GMSA) | -77.78% | $(144) | $(81) | +51.05% | $(358) | $(237) |
| GM Financial (GMF) | -12.79% | $225 | $258 | -8.35% | $439 | $479 |
Those who don’t happen to be geeks of corporate finance should know that EBIT-adjusted is a useful figure since it excludes fluctuating adjustments such as interest income, interest expense and income taxes, among other additional adjustments.
Nevertheless, the operating segment that includes China only made up 11 percent of GM’s bottom line for the second quarter of this year. By comparison, GM North America made up 88 percent.
For those curious about GMIO’s contribution to GM’s revenue, the operating unit made up 8 percent of GM’s $38 billion in revenue during the second quarter of 2015. GM North America, by contrast, made up 69 percent.
General Motors Revenue By Operating Segment - Q2 2015
Dollar amounts in millions of USD| Operating Segment | Q2 2015 / Q2 2014 | Q2 2015 | Q2 2014 | H1 2015 / H1 2014 | H1 2015 | H1 2014 |
|---|---|---|---|---|---|---|
| Total Operating Segments | -3.71% | $38,180 | $39,649 | -4.11% | $73,892 | $77,057 |
| GM North America (GMNA) | +3.16% | $26,481 | $25,671 | +2.16% | $51,157 | $50,075 |
| GM Europe (GME) | -16.52% | $4,987 | $5,974 | -18.61% | $9,436 | $11,594 |
| GM International Operations (GMIO) | -15.24% | $3,053 | $3,602 | -9.76% | $6,165 | $6,832 |
| GM South America (GMSA) | -33.62% | $2,109 | $3,177 | -32.26% | $4,201 | $6,202 |
| GM Financial (GMF) | +27.20% | $1,515 | $1,191 | +25.39% | $2,869 | $2,288 |
So next time someone starts telling you how important the Chinese market is to The General, its bottom line, and — by association — its future, explain to them that it’s important, but not a defining market for the company just yet. Better yet, just share this article with them.
Author’s notes:
- Figures provided by GM’s official financial report for Q2 2015
- In EBIT-adjusted and Revenue tables, dollar amounts are in millions
- GM Financial amounts represent income before income taxes-adjusted
- Total amounts in Revenue table includes Corporate and Eliminations
Sponsored Links
capital. a is over-hyped and of highly political importance. Everything is a joint venture meaning half profit and then companies have trouble with repatriation hence GM over-investment in factories that will lead to eventual over-capacity. GM sell millions of cars yet sees scant profit : Really a waste of capit
Also troubling is how partners owned by the Chinese government gain hands on know how in automaking. Already companies like Wurling and Shanghai Auto are taking joint venture partners on in China and abroad. More troubling is that the US has yet to build a friendly relationship with China.
Latin America and Europe, even with low margins, may turn out as better bets for The General. India, given the independence granted foreign auto companies could be the jewel in the Crown of GM in the decades to come.
China is important to be in as if you are not there you are giving an advantage to those who are in China vs. those not bing there.
Now on the other hand if the market slows down it is shared by all in that market. So the long a short of it is to be in China you will share in the victory and share in defeat of the market together. This way you do not lose an competitive edge with the others.
The greatest disadvantage for GM is much less productive Buick sales will sting more than anything but as time goes on and more sales here and with Holden and Opel continue it will matter less.
Scott, to clarify:
I’m not suggesting that China is not important (to GM, or otherwise). As the numbers show, it just isn’t as important as the gargantuan headline-making sales figures would lead one to believe. Some publications and journalists have even gone so far as to suggest that decreasing sales in China will mean that GM will be “done” or “in big trouble”. Clearly, that’s not the case given that China (GMIO, really) makes up less than 10 percent in profit and revenue for GM as a whole.
Now, as it relates to Buick in China: roughly half of monthly Buick sales there are made up of the original Excelle:
http://gmauthority.com/blog/2012/02/what-is-this-buick-that-sells-20000-units-a-month-in-china/
Despite its age, the vehicle isn’t very profitable, especially after you split up the revenue/profit with SAIC. Given that the decline in the Chinese market is currently taking place mostly on the low end of the market where the Excelle competes, the “sting” that you refer to won’t be noticeable on the bottom line. In fact, Buick can actually become more profitable in China at lower sales volumes thanks to a better mix of (more profitable) crossovers.
Where the real opportunity for GM lies in Cadillac and growing its presence globally, as well as growing the performance of the mainstream brands in markets where they are weak (Asia-Pacific, Africa — though with limited short-term opportunity), Europe, and even North America and segments (hatches, compacts, midsizers, mid-size CUVs).
To suggest that GM China contribution is only 10% of earnings by looking at GMIO is not wise. GM Europe, Brazil, India and Holden are likely packing losses which would offset higher contributions from profitable operations such as China.