GM’s Barra pressed for savings, other ways of keeping up China profitability targets image

China, the world’s largest auto market, is traversing a slow period in terms of sales, with deliveries even falling last month after more than two years of uninterrupted growth.

Naturally, investors feared General Motors, which counts the Asian country as its biggest market, would abandon the pledge to constantly deliver good profit margins from the local operations. But in a surprise move, the second quarter financial results more than double profit, partly because GM managed to keep up its promises regarding China. GM chief executive officer Mary Barra had been targeting her executive team in the region from the incipient signs of trouble earlier this year – they were asked to find compelling methods to keep the company’s goal of hitting an operational margin of 9 to 10 percent even as car prices had to be lowered and the economic growth was weaker each month. “We have commitments and we have targets,” Barra commented in a recent interview. “What do we do to achieve it another way?”

Among the answers were cost cuts for the used materials and increasing production of upscale sport utility vehicles that delivered fatter profit margins. The company announced during the second-quarter results conference call that profits from its joint ventures in China had been flat compared to the same period last year at around $500 million, with margins slightly up at 10.2 percent from 10 percent a year ago. GM also kept its promise of delivering around $2 billion in profits from China throughout the year, even though its vehicle pricing has been sliding by around 5 to 6 percent.

Via Reuters