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General Motors Company (GM), Ford Motor Company (F): Is Demand Shifting To The Far East?

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General Motors Company (NYSE:GM)More than a few analysts have expressed concern that official austerity measures and a slowing economy could put the brakes on China’s high-speed auto sales. So far, however, they’re still rolling along at a decent clip. In response, automakers are doubling down there to make up for weakening demand in Europe.

China topped the U.S. in overall auto sales in 2009 and surpassed Europe in 2012. Although demand kept rising last year, some predicted it would flatten as new government controls took hold and the country’s once-feverish economic growth continued cooling.

Instead, the market is off to its best start since 2010. Passenger-vehicle sales were up 16% year-over-year during the first four months of 2013. And in April, SUVs — China’s fastest-growing market segment — surged 46% from a year earlier.

At the same time, car sales in Europe fell to their lowest levels in two decades. Automakers from across the globe are responding with a variety of China-specific models aimed at that country along with plans for new factories and increased production. The hope is that China’s still formidable demand can offset growing problems across the European continent.

Everyone hurt by accelerating European declines

European sales have been softening since the onset of the Great Recession. They recently cratered into crisis territory, however, and are now dragging down virtually every automaker in the world. Even Volkswagen, the region’s largest, saw overall sales there fall 8% during the first two months of 2013 — propelling the company to a 38% first-quarter revenue decline.

Previously, VW was able to counter homeland weakness by its outsize footprint and strong sales elsewhere. But Eurozone problems have increasingly taken their toll, as the company acknowledged in its recent earnings call. “More and more, the future of Volkswagen will be decided in China, Russia, India, America and Southeast Asia,” CEO Martin Winterkorn said.

With total first-quarter European sales down 10% — paced by double-digit declines in France, Germany and Spain — the list of those struggling has grown lengthy. Fiat reported an 88% drop in net profits during the period. PSA Peugeot Citroën said losses could force new labor talks. Daimler warned European difficulties could require a reassessment of 2013 earnings expectations. Ford Motor Company (NYSE:F) reported a first-quarter pretax loss of $462 million in Europe, and projected a full-year loss of $2 billion in the region.

But China stays hot, and most automakers benefit

Then there’s China. General Motors Company (NYSE:GM), the country’s largest foreign automaker, posted a 15% year-over-year sales increase there in April. Its performance was boosted by Cadillac sales that surged 99%, largely on the strength of its recently introduced XTS sedan.

Ford Motor Company (NYSE:F) was also among automakers reporting solid April sales increases, with China deliveries up 37% year-over-year. Much of this was driven by last March’s launch of the Focus, the world’s best-selling passenger car in 2012. Ford Motor Company (NYSE:F) executives said recently that in just one year China has become responsible for more than one of ever four of these cars sold.

Not everyone has done well, however. Chinese consumers continued their pushback against Toyota Motor Corporation (ADR) (NYSE:TM) and Honda Motor Co Ltd (ADR) (NYSE:HMC) as part of an ongoing boycott of all Japanese products. As a result Toyota Motor Corporation (ADR) (NYSE:TM)’s sales fell 13% in the first quarter, and the company projected sales there wouldn’t rebound before multiple new products — including two China-specific models — are introduced in the fall. China sales for Honda Motor Co Ltd (ADR) (NYSE:HMC), which recently cut profit forecasts and reduced output with two local joint ventures, fell 5.2%.

Nonetheless, most automakers still have strong expectations for growth in the country even as the government forecasts vehicle sales will rise less than 8% this year. This represents a significant decline from the 25% annual growth of recent years, but still means sales will hit a staggering 20.8 million in 2013 — about 1.5 million more than last year.

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