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Why Are Global Auto Giants Struggling in China?

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Auto giants in China

China is the largest single auto market in the world by sales volume. While the market is currently dominated by local auto companies, there is still great growth potential for other mainstream automakers. That’s why auto giants (XLY) such as General Motors (GM), Ford (F), Volkswagen (VLKAY), and Fiat Chrysler (FCAU) have increased their focus on the Chinese market. Let’s review these automakers’ 1Q17 performances in China.

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Performances in 1Q17

In 1Q17, GM, the largest US automaker, reported consolidated sales of 913,442 vehicle units in China, a fall of 6.4% from sales in 1Q16. In 2016, GM reported a notable rise of 257,952 vehicle units in its Chinese retail sales. These sales gains were primarily driven by higher sales of sports utility vehicles and luxury vehicles.

In 1Q17, we saw that sales for Ford and Fiat Chrysler also fell in the Chinese market. Now let’s look at some key reasons for these lower Chinese auto sales.

What’s affecting automakers in China?

China’s auto sales growth rate fell in 1Q17, primarily due to the country’s higher auto purchase tax. The higher tax rate affected small car sales of all mainstream automakers, including GM, Ford, and Fiat Chrysler, in the first quarter.

In addition, global auto industry leaders continue to face stiff competition in China from several local players such as BYD Auto and state-owned FAW Group.

In its 1Q17 earnings presentation, Ford mentioned that it expects profitability to remain weak in the Chinese market due to negative auto industry pricing in the country. Strong competition by Chinese local players continued to force global mainstream automakers to lower their vehicle prices.

Next, let’s look at automakers’ 1Q17 margins and profitabilities.

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