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Ford Motor Company (F), General Motors Company (GM): Just How Important Is the Chinese Auto Market?

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China this. China that. If you’re like me, you’ve come across many articles on industries ranging from automobile to food that mention the “growing importance of the Chinese market.” Then, perhaps one or two stats, if you’re lucky. You might feel like screaming:

“Don’t leave me hanging. Show me the numbers!”

I’m going to show you the numbers — including how automakers such as Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), Volkswagen AG (ADR) (OTCMKTS:VLKAY)BMW,and Daimler’s Mercedes-Benz are faring in the race to capture the ballooning Chinese auto spending.

China’s economic engine: strong, but no longer turbo-charged

Ford Motor Company (NYSE:F)Don’t let recent “China’s slowing growth” headlines mislead you. While economic growth has been slowing, we’re still talking GDP growth rates roughly triple much of the Western world’s. China’s growth rate slowed to 7.5% in the second quarter, down from 7.7% and 7.5% in the previous two quarters. Projections for annual growth for the next few years are mostly at 7.5%, with some at 7%.

Chinese auto market: No. 1 in world

Globally, there were about 81.8 million autos sold in 2012. The top markets:

  1. CHINA: 19.3 million
  2. Europe: 19.0 million (12.5 million in EU + EFTA countries)
  3. U.S.: 14.5 million

Of the 19.3 vehicles sold in China, 15.5 were passenger vehicles (cars and light trucks), while the others were commercial vehicles.

China’s auto market grew at an average annual rate of 24% over the past decade.

(Classifications of “European” market vary among automakers and companies that publish auto statistics. In many cases, “Europe” doesn’t include non-EU countries, such as Russia. Further, it also sometimes refers to Western Europe, or the 15 original EU countries + the 4 EFTA countries, rather than all EU countries + EFTA countries.)

Chinese premium auto market: No. 3 in the world

The current size of the global premium auto market is about 5.7 million units. The top three markets:

  1. Europe: 2.7 million
  2. U.S: 1.5 million
  3. CHINA: 1.25 million.

China’s premium auto market grew at an average annual rate of 36% over the past decade.

Chinese auto markets projected growth rates

Projected average annual growth through 2020:

  • Overall: 8%
  • Premium: 12%

Capturing share in the premium market is especially important, as profit margins on premium autos are considerably higher than on more moderately priced ones. For instance, premium automakers Audi (a VW unit), BMW, and Daimler (Mercedes’ parent) had operating margins of 11.0%, 10.8%, and 6.8%, respectively in 2012. Meanwhile, Ford Motor Company (NYSE:F) had an operating margin of 4.7% (General Motors Company (NYSE:GM)’s was negative).

China is projected to take the No. 2 premium auto market spot from the U.S. by 2016 by selling 2.25 million premium vehicles, and to tie Europe for the No. 1 spot by 2020 by selling 3.0 million vehicles, with the U.S. trailing at 2.3 million vehicles.

A look at how far and fast the Chinese premium auto market has come and is projected to go:

IHS Global Insight & McKinsey

What automakers are winning the overall market in China?

Automakers with highest overall market share in 2012:

  1. General Motors Company (NYSE:GM): 14.7%
  2. Volkswagen AG (ADR) (OTCMKTS:VLKAY): 14.6%

In just the light passenger vehicle category, VW wins the crown:

  1. Volkswagen AG (ADR) (OTCMKTS:VLKAY): 19.5%
  2. General Motors Company (NYSE:GM) & Hyundai: 10% each

Ford Motor Company (NYSE:F)’s share was 3%. Why so low? Ford was a late entrant into the Chinese auto market. Volkswagen AG (ADR) (OTCMKTS:VLKAY) had the foresight to enter the market 30 years ago, and GM also got an earlier start.

However, Ford Motor Company (NYSE:F) has been aggressively targeting China and is investing $5 billion in its efforts. Its goal is to double its market share – to 6% — by 2015. Last year, Ford announced plans to introduce 15 new models in China by 2015. Its early progress looks promising. Ford’s Focus, introduced in early 2012, ended up being the best-selling car in China in 2012, and continues to pick up momentum. And Ford’s China sales surged 47% in the first half of 2013.

General Motors Company (NYSE:GM)’s also humming along, as its first half sales were 10.6% higher than in the first half of last year. GM’s strength in China lies with its small commercial trucks sold under the Wuling brand, and its Buick and Chevrolet passenger vehicles.

Unlike the German and U.S. automakers, Japanese automakers experienced sales drops in China in 2012. This was due to boycotts and riots sparked by a territorial dispute that erupted in September over a group of uninhabited islands. Toyota’s, Nissan’s, and Honda’s, sales in China fell 4.9%, 5.3%, and 3.1%, respectively. The Japanese automakers are reporting that China sales are recovering in 2013 – though they’re still below pre-dispute levels.

What automakers are winning the premium auto market in China?

Automakers with highest market share in 2012:

  1. Audi: 30%
  2. BMW: 24%
  3. Mercedes-Benz: 21%

Since VW was an early entrant in China, its Audi brand has a solidified “luxury” image in consumers’ minds.

General Motors Company (NYSE:GM)’s a smaller player in the luxury market with its Buick and – to a much lesser extent – Cadillac brands. GM has a goal to triple its Cadillac sales in China to 100,000 by 2015. In June, GM broke ground on a new Cadillac plant in Shanghai as part of the company’s $11 billion China investment plan through 2016.

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