The market for luxury cars in China is one of the fastest-growing -- and most lucrative -- automotive markets in the world. China's wealth explosion has led to white-hot demand for Western luxury goods of all kinds, from Rolex watches to top-shelf champagne. Luxury cars are no exception.
With its long-established position as the top-selling automaker in China, General Motors Company (NYSE:GM) might seem to be in a great position to take a lead in this immensely profitable market. My Foolish colleague Daniel Miller recently made just that argument.
But I don't think so. As I see it, General Motors Company (NYSE:GM) is going to have to make a massive effort if it wants to gain significant ground in China. That effort will cost billions of dollars, and take (at least) several years to bear fruit.
And even then, it might be hopeless, because the competition is already well-established.
Sure, GM can beat Toyota and Ford Motor Company (NYSE:F), but... Daniel (rightly I think) dismissed potential challenges to General Motors Company (NYSE:GM) from the likes of Toyota Motor Corporation (ADR) (NYSE:TM) and Ford Motor Company (NYSE:F). While Toyota's Lexus brand is a well-established and credible luxury competitor in other parts of the world, lingering anti-Japanese sentiment from last year's China-Japan territorial clash continues to hurt Toyota's China efforts across the board.
In some ways, Ford Motor Company (NYSE:F) is a more serious threat. While the Blue Oval, which got a very late start in China compared to its biggest global rivals, has nothing like General Motors Company (NYSE:GM)'s presence in the Middle Kingdom, it does have some top-notch products going for it -- and those products are proving to play well with Chinese consumers. Already, the Ford Focus is one of China's top sellers, and the Escape SUV -- called the Kuga in China – has been climbing the charts since its introduction a few months ago.
Ford Motor Company (NYSE:F) is doing well in China by positioning its well-equipped mainstream models as premium offerings. But, true luxury cars are something else. While Ford is making a big effort to resuscitate its laggard luxury brand, Lincoln, that effort could take years to gather steam. Even then, it seems pitched more at the Japanese luxury brands rather than at the real global luxury heavyweights that dominate the market in China.
It's those heavyweights -- the big three German luxury carmakers -- that stand between General Motors Company (NYSE:GM)and success in China's luxury-car market. And they represent a huge obstacle: All three are formidable competitors and, to put it simply, GM isn't yet in a position to confront them directly.
The German luxury leaders are another matter Why will it be a challenge for General Motors Company (NYSE:GM) to confront the Germans in China? For one thing, they already pretty much own the market: In 2012, BMW had a 23.6 percent share of China's luxury car market, Daimler's Mercedes-Benz brand had a 20.6 percent share, and Volkswagen's Audi brand had a whopping 29.6 percent share.
That's almost three-quarters of the market right there. As for GM's luxury brand, Cadillac? It's barely on the charts, selling just a few thousand vehicles in China every month.
So how can GM up its game? First and foremost, GM needs the product. The problem right now is pretty simple: Cadillac doesn't have very many cars that can go toe-to-toe with the best from its German rivals. In fact, at the moment, I'd argue that it has exactly one, the ATS compact sedan that debuted last year.