1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Live Investor
Live Investor
Articles (75) 

GM, Ford and Other Foreign Automakers’ Grip Gets Stronger in China’s Auto Market

February 16, 2014 | About:

The world’s largest auto market China registered record sales numbers for the month of January. Solid demand for vehicles revved up the sales volume to as high as 2.16 million vehicles, up 5.99% compared to the year ago month that witnessed sales of 2.05 million units.

But if we make a sequential comparison, we see that January sales gain were much weaker than December sales. The Chinese auto market experienced a sequential growth of 6% in January, in comparison to December which saw the overall market grow 17.9% giving the year a good end. The growth was weighed down by the slothful sales of commercial vehicles. Sales were also stunted by the Chinese New Year holiday week in the end of January. This resulted in less number of sales days in the month relative to January 2013.

But overall, China is increasingly becoming attractive for world’s major automaker, thanks to the robust demand and rising disposable income. What are the other factors that are aiding the auto market in the mainland?

The key drivers
Car ownership rate and disposable income:
Vehicle ownership rates in emerging countries like China and India are mostly less than 200 cars per 1,000 population. In fact China’s car ownership rate is as low as 80 in 1,000 people, which gives tremendous opportunity for automakers to grow. Demand for cars is bound to increase as the Chinese population now has more of disposable income to spend on cars. Increasing urbanization and improving income have been quite a catalyst to lift China to the top spot as the biggest car market.

Sweet spot for passenger cars:
The Chinese population has a sweet spot for passenger cars that accounted for 1.85 million units out of the total deliveries made during the month. This was up 7.03% over last year passenger car sales unit for the same month. Foreign automakers’ stylish offerings are luring people to buy foreign brands over local cars. Ford (NYSE:F) Focus is the top-selling model that is enjoying stellar sales in the mainland. Ford’s January sales volume totaled 94,466 vehicles, of which more than 72,000 units were passenger cars.

Ford Focus, Source: automania.be

Overall scenario for auto players – a warning for local carmakers
Overall Japanese automakers saw a slip accounting for 13.61% of the total sales volume while other foreign brands including Germany, U.S., South Korea, and France performed well. General Motors (NYSE:GM), Ford, and Toyota (NYSE:TM) posted double digit sales growth in January, but local carmakers suffered due to the growing popularity of such stylish foreign brands. Geely Automobile, a local automaker registered sharp deliveries decline of 47%.

The China Association of Automobile Manufacturers passed a warning that if foreign automakers are given the liberty to operate in the mainland, the day might come very soon when the local players would almost get wiped out. Market share of local automakers tumbled 4.9 percentage points to 38.4% in January over last year. Local brands combined sales fell 5.1% during the month as they are unable to compete with the like of foreign carmakers including Ford, GM, and Volkswagen (VLKAY).

Looking ahead – lots of excitement
The ratio of local car brand sales to foreign brand is likely to change given the huge competition that domestic players suffer from their foreign counterparts due to the cost advantage, better technique, and stronger global supply chain.

Regardless of that, China is expected to show strong demand with sales gain estimated to hover around 10% for the current year. Ford, in particular, is emerging as the dark horse of the race. The company is seeing phenomenal sales in the mainland. Its sales volume overtook Toyota’s in the last fiscal. But Japanese players can’t be taken that easy as they are rejuvenating from the political crises that crippled their sales in China. GM and Volkswagen are at the top tier with massive coverage.

With so much happening in China’s auto market, the year is expected to be pretty eventful.

Rating: 5.0/5 (7 votes)


Please leave your comment:

Performances of the stocks mentioned by Live Investor

User Generated Screeners

Doug Taylor<3 pe
nec5555Pat Dorsey Moat 5Y v1
nec5555Pat Dorsey Moat 5Y
opadovaniP Median2 No DIV
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat