China is the biggest auto market of the world, seeing sales of 15.5 million passenger cars and a growth rate of 7.1% in 2012. The latest data for December 2012 by the China Association of Automobile Manufacturers (CAAM) shows that car sales went up by 6.9% to 1.46 million vehicles. By comparison, a total of 14.49 million cars and light-duty trucks were sold in the U.S in 2012, a 13.4% increase over last year, including 1.35 million sold in December, up  9% year-over-year. The biggest American and Japanese vehicle manufacturers have invested heavily in China and leading from the front is General Motors Company (NYSE:GM) .

Although Chinese automobile growth numbers are promising they are lower than the estimated growth rate of 8%. CAAM attributes this decline to increasing fuel costs, economic slowdown, some of the major cities adopting policies to reduce carbon emission and traffic congestion. Moreover, the Beijing-Tokyo island dispute caused a serious dent in the sale of Japanese cars and while American firms have capitalized on this opportunity, they couldn’t keep up with expectations.

Foreign manufacturers in the Chinese automobile industry witnessed mixed outcomes in 2012. US auto manufacturers performed well whereas Japanese sales plunged. General Motors, having a joint-venture with SAIC Motor Corp, sold 2.84 million vehicles (11.3% growth), while Ford Motor Company (NYSE:F) sold 0.62 million vehicles (21% growth). On the other hand, Toyota Motor Corporation (ADR) (NYSE:TM) , Honda Motor Co Ltd (ADR) (NYSE:HMC) , and Nissan sold 0.84 million, 0.59 million, and 1.18 million vehicles respectively. Toyota’s December sales plunged by 16% YoY to 90,400 units and the vehicle giant ended up selling the exact same number of cars in China as Nissan, the smallest of the three Tokyo vehicle giants. Overall, for 2012, Toyota, Honda and Nissan have reported a decline in sales of 4.9%, 3.1% and 5.3% respectively.

General Motors has two joint ventures in China; with SAIC called Shanghai General Motors Corp and with FAW Group called FAW-GM Duty Commercial Vehicle Co. GM now is working on another joint venture with SAIC Motor Corp and Wuling Motors Holdings Ltd called SAIC-GM-Wuling by building their third vehicle manufacturing facility in Chongqing. This $1 billion investment will produce 400,000 vehicles, out of which the majority will be minivans. Construction work is expected to begin as early as this year while the plant will become operational by 2015.

General Motors had been topping the list of foreign auto manufacturers who are conducting operations in China. In 2012, despite the massive 24.5% increase in the number of shipments by Volkswagen AG to China of 2.81 million vehicles, GM managed just barely to keep a narrow margin of 30,000 units. The major contributor to this success was the GM-Wuling Minivan. Currently, the partnership of SAIC-GM-Wuling covers 47.5% of the minivan market, mostly in the rural class. But, Volkswagen’s superior economy-of-scale and product line will likely out-compete GM in the long run.

At its core, GM is still the same poorly-managed commodity producer it has always been.  Volkswagen’s MQB platform and huge advantages in existing technology, R&D spending and eventual production efficiency should prove too much for GM, who is capitalizing on the initial rush of first time car buyers in the Chinese market.  Meanwhile, GM is also estimating 8% growth in 2013. In keeping pace with the growing Chinese auto market, GM will be adding 400 dealers to its network, thus, raising the current dealership from 3,800 to 4,200.