Auto sales in China are up 9% over last year through April 2014, a slower pace than last year’s 13.9% growth but still enough for Western auto manufacturers to make significant gains. Sales are expected to hit 23 million units in 2014 and 25 million in 2015, and the competition between General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), Volkswagen and others is heating up.
Ford is the fastest growing brand in China
General Motors Company (NYSE:GM) has been the market leader in China since 2007 and it has pushed its advantage a bit this year, but Volkswagen’s market share has jumped 1.8 percentage points (not at the expense of GM) putting it in the lead. Ford Motor Company (NYSE:F) is still a relatively small player in China compared to its market position in the US and Europe, but it is also the fastest growing brand with an impressive 45.7% increase in sales through April this year. Volkswagen, Nissan Motor Co., Ltd. (ADR) (OTCMKTS:NSANY) (TYO:7201), and PSA Peugeot Citroen have also put up double-digit comps through April.
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“While the growth rate in the market is expected to be lower than previous years, the market trends favor the U.S.-based manufacturers and the region should remain a significant profit contributor,” writes Sterne Agee analyst Michael Ward, who rates both General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) as a Buy.
Trends support strong growth for General Motors in China
General Motors Company’s (NYSE:GM) joint ventures in China contributed $595 million in equity income during 1Q14, compared to $548 million in 1Q13 and $1.8 billion in 2013YE, and Ward expects to see continued improvement for at least the next two years. He also points out that GM’s joint ventures are self-funded, meaning that the company gets dividend income and royalties to offset international development costs. The growth of a secondary car market and better availability of car loans should also support sales, as it becomes easier for Chinese consumers to trade up to newer models.
Vehicle production in China grew 14.8% in 2013, and there is no sign of it slowing down. GM is expanding annual production capacity in China from 3 million units to 5 million over the next few years, and US suppliers have followed its lead so that both will be able to grow along with the market.