GM China's July sales drop 4 percent but profit margin goal seen intact

BEIJING (Reuters) - General Motors Co sales in China fell 4 percent year-on-year in July but the U.S. automaker said it remained on track to achieve an upbeat goal for profit margins this year in its second-largest market.

GM and its joint ventures sold 229,175 cars in China in July, attributing the decline to model changeovers, according to a statement on its website on Thursday.

The July drop compares with a 0.2 percent increase in June and a 4 percent decline in May. GM sales grew 3.3 percent in the January-to-July period compared with the same months last year.

While industry-wide data shows car sales faltering as China's economy grows at its weakest pace in 25 years, GM spokeswoman Irene Shen said the company still expects to maintain strong margins around 9 to 10 percent - a level that GM China chief Matt Tsien said in May the company was aiming for this year.

GM's shift toward SUVs, including the launch of the lower-end Baojun 560, could negatively impact its margins in China, but a greater contribution from the high-end Cadillac brand could help to lift profits, said James Chao, Asia-Pacific head of IHS automotive.

"So, overall, they do have a shot at maintaining their margins around 9 to 10 percent if the luxury end of the market in China holds up," Chao said.

IHS forecast that GM would cut production in China by 5 percent in July compared with a year earlier to avoid overproduction and to protect its margins, although Chao said he was not sure if GM ultimately cut more or less than that.

GM's Shen said the company had made no major moves to curtail production, although it regularly manages production volume to maintain a healthy level of inventory.

The automaker expects to boost profits in China and maintain margins by improving its product mix and controlling costs, she said.

Analysts and industry executives have been concerned that overall auto sales in China would contract for a fourth month in July after a stock market crash further dampened buyer sentiment.

The China Association of Automobile Manufacturers releases industry-wide data next week. In July, the body more than halved its 2015 sales forecast to 3 percent in part because of the stock market slide.

(Reporting by Jake Spring and Norihiko Shirouzu; Editing by Edmund Klamann)

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