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GM expects sales in China to remain weak through 2019

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GM expects sales in China to remain weak through 2019

Vehicle sales in China's auto industry are expected to remain weak through the second half of 2019, top General Motors Co. executives said Aug. 1.

The Detroit-based automaker reported $235 million in equity income from China in the second quarter of 2019, down 60.30% from $592 million in the second quarter of 2018. This drop was partially offset by better performance outside China, the company said, but it expects the equity income from China in the second half of the year to remain generally the same.

"GM China headwinds in the quarter included lower volumes, significant pricing pressure, regulatory changes, slower sales of our outgoing models, and shifting customer preferences," GM Chairman and CEO Mary Barra said during the company's earnings call.

GM Executive Vice President and CFO Dhivya Suryadevara said the pricing pressures included an early transition in some parts of China to new emission standards. Those standards combine emission-reduction practices from the European Union and the U.S., along with a push for battery-electric and plug-in hybrid vehicles.

Barra said China is a "very important part" of GM's electrification strategy as it will help "get the scale from an [electric vehicle] perspective that allows us to be better positioned" to launch electric vehicles in other markets, including North America.

The company is working to be disciplined with its inventory levels in the country in response to the lower China sales, Barra said.

Suryadevara said GM reduced its dealer inventory in China by 10% in the second quarter, with wholesale volume and production down approximately 25% year over year.

The automaker plans to launch 20 new vehicles in China to help revitalize its presence in the country. It will focus on luxury vehicles and SUVs to meet shifting consumer preference, with the majority of these vehicles going on sale in the second half of the year. Even so, Barra said GM still expects the headwinds in China to continue through the third and fourth quarters of 2019.

With that in mind, the company reiterated its full-year guidance of adjusted diluted EPS in the range of $6.50 to $7.00, with an adjusted automotive free cash flow of $4.5 billion to $6 billion, Suryadevara said.

In 2018, the automaker sold 3.65 million vehicles in China, down 9.8% from 4.04 million in 2017, according to the most recently available data compiled by S&P Global Market Intelligence.