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General Motors: What Headwinds Does the Core Business Face?

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Core business

Selling cars has been General Motors’ (GM) core business for more than a century. Despite its innovations in autonomous driving and electric vehicles, GM is still a mainstream automobile manufacturer.

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Headwinds facing General Motors

During the company’s global business conference on October 1, General Motors’ CEO, Mary T. Barra, outlined four headwinds facing the company’s core business:

  • Slowdown in China: China’s passenger car sales fell 3.39% year-over-year (or YoY) in August, as shown in the graph above. August marks the third consecutive month where China’s passenger car sales have registered a year-over-year decline. In the first eight months of 2015, passenger car sales have risen at a dismal 2.5% as compared to the corresponding period last year. China is a key market for General Motors. Last year, GM sold 3.5 million vehicles in China as compared to 3.4 million units in North America. The slowdown in Chinese vehicle sales remains a significant challenge for GM. Volkswagen (VLKAY) holds the leadership position in China in terms of market share.
  • Challenges in South America: General Motors’ South American operations posted a negative adjusted EBIT (earnings before interest and taxes) of $0.1 billion in 2Q15. Ford’s (F) South American operations have also posted losses for the last several quarters. Vehicle sales in Brazil (EWZ)—the biggest market in South America—have slowed down. Fiat Chrysler (FCAU) is the market leader in South America.
  • Increased competition in the US: The US is currently the most attractive market for automakers. This has led to increased industry rivalry as automobile companies try to improve their revenue share from the world’s most profitable market.
  • Weak brands: General Motors does not enjoy the same brand recognition as it did two decades ago.

In the next part, we’ll discuss what GM is doing to address these challenges, especially in China.

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