A combination of hard work and good fortune will pay off for U.S. auto companies in China in 2013, with Ford Motor Co. (NYSE: F) and General Motors Co. (NYSE: GM) both expected to book record sales.
Both U.S. auto companies set sales records in 2012. Sales of Ford vehicles in China rose 21% year over year to 626,616.
GM, which is neck-and neck with Volkswagen AG (VLKAY) for the title of auto sales leader in China, reported combined sales from its joint ventures of 2.85 million vehicles, a year-over-year increase of 11.7% over 2011.
Both Ford and GM have built factories in China, and both U.S. auto companies plan to continue expanding there in 2013.
Ford plans to introduce 15 new models in China and double its production capacity to 1.2 million vehicles by 2015. The company also plans to double its network of dealerships in the country.
GM, in the middle of a five-year plan to invest $7 billion in China, has plans to add a third factory and increase production to 2 million vehicles annually by 2015. GM has set a goal of selling 5 million vehicles a year in China by 2015.
GM also plans to add 400 dealerships in China next year, which would give it 4,200 in all.
Here’s what U.S. auto companies see in this foreign market.
China’s Opportunity for U.S. Auto Companies
Like many large multinational corporations, Ford and GM have sought to capitalize on the massive size of the Chinese market and its growing middle class.
And every indication is that all the planning and investments of the U.S. auto companies in recent years are about to pay off in a big way…
“China remains a highly attractive market due to its long-term growth potential. It is no surprise that auto makers are playing some big bets in China, and doing so ahead of other markets,” Andrew Thomson, head of KPMG’s Asia-Pacific automotive consulting practice, told The Wall Street Journal.
The Chinese auto market is finally recovering from the hangover of a Chinese government stimulus program that had sales rising at a blistering 32% in 2010. Auto sales in China grew a mere 2.5% in 2011, but increased 4.3% last year to 19.3 million vehicles.
Projections for 2013 have China’s auto sales increasing at a rate of 5% to 10%. The China Association of Auto Manufacturers last week forecast a 7% rise for 2013, which would push sales past 20 million for the first time.
“It’s still a quite healthy demand for passenger vehicles,” Klaus Paur, the global head of automotive research for Ipsos, told Agence France-Presse. “Overall, this paints quite a good picture for development in the China market.”
Looking further ahead, IHS Automotive forecasts auto sales in China will grow more than 58% to about 30.6 million vehicles a year by 2020, almost twice the size of the U.S. market.
Anti-Japanese Sentiment Helps Ford, GM
Meanwhile, U.S. auto companies stand to benefit from the ongoing dispute between China and Japan over several islands in the South China Sea. Public anger at a Japanese plan to buy the islands led to riots in Chinese cities in September and a general boycott of Japanese imports ever since.
Toyota Motor Corp. (NYSE ADR: TM) sales fell 49% in September and 44% in October, with Honda Motor Co. (NYSE ADR: HMC) and Nissan Motor Co. (NSANY) also reporting record drops last fall. Sales of Ford and GM cars rose in the same period.
Japanese auto sales in China are expected to recover somewhat this year, but not to pre-dispute levels.
The backlash against Japanese brands will continue to boost sales for the U.S. auto companies as long as the island dispute simmers. That shows no sign of being resolved any time soon, as China sent several fighter jets into the area over the weekend.
With their expanding production and a number of models designed specifically for the Chinese market, Ford and GM have positioned themselves perfectly for more gains in the world’s largest auto market.
“Not everyone will be the winner but some of the automakers that invested previously in R&D will be,” Jeff Chung, a Hong Kong-based analyst at Daiwa Securities Group, told Bloomberg News. “The automakers with the best product mix, best geographic mix will still enjoy very high growth rates.”
David Zeiler,
Contributing Writer, Money Morning
Publisher’s Note: This is an edited version of an article that originally appeared in the Money Morning US edition.
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