2/2/2011 1:45 PM ET|
Sorry, Toyota: GM is winning China
The Motor City giant now sells more cars in China than in the U.S., and that market could restore its title as the world's top seller of cars. Turns out the Chinese love Buicks and Chevys.
If you want to know where the battle between the world's two biggest automakers stands, first forget all the negatives you've heard in the headlines over the last year or two.
Fresh out of bankruptcy, General Motors (GM, news) is no longer shackled by high costs. Its growth prospects suggest the U.S. will soon enough sell its remaining stake for a profit, allowing GM to lose its "Government Motors" image for good. GM is also once again showing a knack for designing popular models.
Instead, the future of these two rivals, and their legions of workers and investors, can be summed up in one word: China.
China hits the road
Economic growth in China is creating so much nouveaux wealth that vehicle sales will double in 10 years, turning the country into the biggest car market in the world by far.
The good news for GM is that it is clearly winning this market. And that trend should soon put the Motor City car company back on top as the world's largest auto producer, a position it held for nearly eight decades before losing it to Toyota in 2008. Toyota's edge is slim: 30,000 vehicles last year.
"China has been one of the genuine bright spots for General Motors in the past few years. It's no wonder that you seem to see more Buicks on the street in Shanghai than in San Francisco," says Ken Calhoon, of Calhoon Consulting, a strategic consulting firm.
Consider these numbers.
GM's China sales increased 29% last year to 2.4 million vehicles. In contrast, Toyota's sales rose just 19% to 846,000. That kind of performance makes GM the clear market leader in China, with a 15% market share, compared with Toyota's 5% share. Because GM had such a great year in China, it now sells more vehicles there than in the U.S.
About 20% of GM net profits come from China, says Himanshu Patel, an analyst at JPMorgan Chase. But that's going to rise sharply -- as long as GM maintains its edge there -- because of a big change in auto-sector sales over the next decade.
Analysts at Goldman Sachs estimate that 70% of the worldwide growth in car sales between 2010 and 2020 will come from the biggest emerging market economies, with China providing most of the oomph. Goldman Sachs estimates that by 2020 the sales of passenger cars and light commercial vehicles in China could hit 30 million, almost double the 18.1 million in sales last year.
Patel says GM's strength in China could help push the stock into the $60 range over the next two years, from recent levels of $36.
From scooters to cars
There's a simple reason why Chinese car sales will skyrocket. The 8% to 10% annual economic growth there is pushing up consumer purchasing power by a similar amount -- and the Chinese are just itching to use their new wealth to trade up to cars from scooters, bikes and shoe leather.
"There is huge, unmet domestic demand," says Terry Johnsson, the vice president of vehicle sales, service and marketing for Shanghai GM.
Currently, there are about 40 vehicles on the road per 1,000 Chinese citizens, compared with 750 per 1,000 people in the U.S. No one expects China to match the U.S. in cars per capita any time soon. But typically, countries see car ownership ramp up sharply when per capita income rises above $4,000 a year. China should cross that threshold this year, Johnsson says.
GM is likely to get the biggest share of those sales, according to several industry experts I spoke with recently. They cite four reasons GM is on top in China and likely to stay there:
No. 1: The Chinese love Buicks
GM's Buick was the popular car in China in the 1920s and 1930s, and the Chinese remember. "Buick became a symbol of wealth and prestige because at that time cars were extremely rare," says Bernard Swiecki, of the Center for Automotive Research. "And the name still resonates today."
Two years ago, for example, the Buick LaCrosse was voted car of the year by the Chinese Automotive Media Association. Sales of Buicks rose 23% last year to a high of 550,000 vehicles. The biggest-selling Buick is the Verano, which is called the Excelle in China. But the new Regal and LaCrosse are also hot. LaCrosse sales rose 140% last year to 104,300 vehicles.
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Great news, I love to see american companies doing well in other countries. Good job and keep up the good work.
GOVERMENT MOTERS AKA GM CARS AND TRUCK ARE JUNK TOYOTA QUALITY WENT WENT DOWN BECAUSE THERE BUILT HERE IN THE USA USING US MADE PARTS FACT THERES A WEB SITE THAT TRACKS ALL AUTO MANUFACTURES RECALLS AND EVER SINCE TOYOTA STARTED USING USA MADE PARTS AND BUILDING THEM HERE THE QUALITY WENT DOWN. GM, FORD VEHICLES ARE MADE MOSTLY IN MEXICO AND CANADA AND FINAL ESSEMBLY HERE. I HOPE TOYOTA WISES UP AND GOES BACK TO THE OLD TOYOTA AND BUILDS THEM OUTSIDE OF THE USA AND STOP USING US PARTS, TOYOTA WAS FORCED TO MAKE THERE VEHICLES HERE BECAUSE OF THE 25% TARIF THANKS TO THIS WONDERFULL GOVERMENT THAT BRAIN WASHES PEOPLE INTO THINKING WE ARE TURNING AROUND OUR WAY OF LIFE HAS CHANGED FOREVER PEOPLE HOPEFULLY TOYOTA PULLS OUT OF THIS COUNTRY AND STARTS MAKING VEHICLES LIKE THAY USE TO
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Equity indices displayed strength in the early going with the S&P 500 tagging the 2,019 level during the opening 30 minutes of the action. However, ... More
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