General Motors and Ford See a Sales Boost In China

Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

China, the world's largest auto market, experienced a 6.4% rise in passenger car sales in October. Detroit automakers General Motors (NYSE: GM) and Ford (NYSE: F) witnessed a sales gain for the same month as Chinese consumers continued to turn away from Japanese brands, due to a territorial dispute over the Senkaku islands. Japanese car sales tumbled 38% to 98,900 vehicles compared to September, which resulted in a fall in market share from 13% to 7.6%.

American automakers gain from the situation

While Toyota (NYSE: TM), Honda (NYSE: HMC) and Nissan are suffering from a sales drop, the US automakers are benefiting from the consumer backlash. Both Ford and General Motors posted strong sales number for October. Ford's car sales increased to 60,518 vehicles, a jump of 48% compared to the same quarter a year ago. Similarly, General Motors recorded sales growth of 14% to 251,812 vehicles compared to the prior year figures and strengthened its top position in the economy. Though China’s growth has slowed down over the past year, the auto sales figure look pretty impressive.

The situation for the Japanese automakers is not going to improve any time soon, which could prove beneficial for the US and German carmakers. Growth in the Chinese market is particularly crucial for the Detroit-based companies, as their European losses are continuously eroding their profit margins. Both Ford and GM have a restructure plan for their European operations, but a return to profitability in the region will take some time.

While the top two US automakers work on their restructuring plan, they need the support of the Asian market to fill the gap of their European sales and future growth. So expansion in China is essential for the development of the two automakers. Ford has plans to double its production capacity to 1.2 million by 2015 in the mainland. Doubling the capacity in three years time is an extremely ambitious program, but Ford doesn’t want to lose on this opportunity to grab some market share from Toyota, Honda, and Nissan. The automaker has plans to enter new segments to increase brand awareness and customer experience. In contrast, GM’s Buick and Chevrolet are already a highly accepted brand in the Chinese market. The question is if the company will be able to defend its position in the long run.

While American brands are faring well in the nation, let’s take a look at the numbers reported by the Japanese automakers.

Territorial dispute hurting the Japanese makers

The Japanese auto companies had just started enjoying their recovery from last year’s tsunami and subsequent flooding. However, the territorial dispute brought them back to trouble again. Toyota’s unit sales in China fell 44% for October after a 49% drop in September. Honda reported a dramatic decline of 53.5% for the month, while Nissan’s sales tumbled 40.7%. This is the second consecutive month that these carmakers are reporting depressed sales. Other than this, Mitsubishi also reported a 63% fall in sales and Mazda posted a drop of 35% in its monthly car deliveries.

Toyota, Honda, and Nissan had a combined annual target to sell 3 million vehicles in China, a target that's probably not going to be reached. Toyota brought down its annual sales target of 1 million vehicles, as under the present circumstances it is no longer achievable. Even Honda cut down its fiscal year target from 750,000 to 620,000 units. As per reports, Nissan’s current fiscal sales in China are estimated to be lower than last year’s 1.25 million.

Despite all this, Toyota remains optimistic. Asia’s largest automaker reported an 18% gain in the worldwide sales in the recent quarter, which was majorly attributable to its Prius hybrids and Camry sedans. The automaker made 2.43 million deliveries in the last quarter. The company’s recovery from the natural calamities is commendable. Anti-Japanese backlash may have hurt the automaker’s annual target, but Toyota is all set to launch 19 new models to venture into new markets.

My takeaway

Japanese automakers are losing in the Chinese market. The situation might not improve in the near future, and this could damage the top-lines and bottom-lines of these car manufacturers. However, Chinese buyers will eventually start considering Japanese cars once again. Until then, the US and German automakers stand to gain the most. They will leave no stone unturned to capture the growing Chinese market, in order to gain a strong position in the emerging nation. It would be interesting to see how the world’s largest auto market looks once the Japanese carmakers are back in the race to fight their counterparts.

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