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Top Automakers Keep Steering Toward China

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

As 2012 draws to a close, it looks like the battle between the world’s Top 3 automakers will come down to which one is most successful in China. Despite a rough end to the year, Toyota (NYSE: TM) could still reclaim the global crown, with General Motors (NYSE: GM) and Volkswagen duking it out close behind for second place. The difference will be determined by sales in the biggest — and still fastest growing — auto market on the planet.

Big Three Continue Recording Impressive Gains

Globally, auto sales are expected to hit a record level this year behind improved performances in the U.S. and Japan. Toyota fell behind GM in the worldwide three-player race in 2011 after the devastating earthquake and tsunami in its home country knocked production and sales for a loop. Its recovery this year has been impressive, with domestic sales fueled by government incentives. The automaker has fallen behind GM in the critical China market, however, and the gap only widened late this year after a territorial dispute between the two countries set off massive protests in China along with a widespread boycott of Japanese products.

GM, meanwhile, has led all automakers in China sales for the past six years, selling one car or truck there every 12 seconds through its 12 joint ventures and two wholly owned enterprises. In 2011 it sold more vehicles in China (2.547 million units) than in the U.S. (2.504 million), marking the first time in its 102-year history that foreign sales outpaced domestic sales. Driven by the popularity of its Buick and Cadillac brands the growth has only accelerated since then, with China sales in November up nearly 10% year-over-year. Looking ahead, the company plans to invest more than $7 billion in the country through 2015 and launch a new Cadillac model each year in an effort to double total sales there to about 5 million units.

VW, of course, is not taking this lightly. Recognizing the potential — China surpassed the U.S. as the world's largest auto market in 2008, and car registrations in Beijing alone increased from 2.8 million to 4.8 million since 2005 — the company has concentrated on sales there and been very successful in capturing a larger share of the all-important luxury market through its popular Audi brand and other high-end nameplates like Bentley, Lamborghini and Bugatti. Through November its China sales were up 20% over 2011, and it is giving GM a run for the country’s sales lead.

Other Automakers Have Benefitted from China Too

Due in part to the backlash against Japanese products Ford (NYSE: F) has also enjoyed a sales boom in China this year, selling 48% more vehicles there in October than a year earlier as Toyota sales dropped 44% during the month following a 49% decline in September. (Toyota's China sales were down 22% in November, although this decline was somewhat less than analysts were expecting.) Like many of its rivals Ford is expanding in China, introducing 15 new models over the next three years. It will also make its re-energized high-end Lincoln brand available there, marking its first luxury offering in China.

In addition to VW, high-end German carmakers Bayerische Motoren Werke and Daimler continue to show strong performance in China thanks to their popular luxury models. The former’s BMW, for example, sold 295,974 units in China during the first 11 months of this year while the latter’s Mercedes-Benz sold 177,301. (GM’s Cadillac, by comparison, sold 27,073 there during the same period.) Both BMW and Daimler report that their China sales are growing two to three times faster than their overall global sales.

Conclusion

Despite the country's recent economic slowdown, the China auto market continues to far outpace every other one worldwide. Total light vehicle sales there are expected to hit 21 million in 2013, far above the 15 million or so anticipated in the U.S.

As a result, carmakers — particularly those ensconced in China’s still booming luxury auto market — are increasingly focusing their attention there and the competition is heating up. To win the global sales battle, it is increasingly obvious that it will be necessary to capture a larger share of the China market. Toyota, Volkswagen and General Motors continue fighting it out at the top, but they are hardly alone as more and more competitors tap deeper into the world’s biggest auto showroom.


TheChiefToo has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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