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

Increased competition going forward could alter the market

Sales of smaller vehicles and SUVs have boomed in the last year or so, but luxury cars keep outpacing overall demand and driving automaker activity as well as profit. VW’s Audi brand — the segment leader — sold nearly 400,000 vehicles in China last year and first-quarter 2013 sales rose 14% year-over-year.

Additionally, Bayerische Motoren Werke’s BMW was up 7.4% during the period and Daimler’s Mercedes-Benz was up 5.4% in March (although down for the quarter). Even relative newcomer Jaguar Land Rover attributed a 16% increase in global sales in March to strong China demand.

As the market becomes more critical, however, the big players aren’t standing still. General Motors Company (NYSE:GM), for example, already hit it big by making changes to Buick models that appealed more to local tastes. Observers think the company will now do the same with Cadillac, which received permission in May to open its first Chinese factory and expects to grow sales there by more than 50% this year.

Other luxury brands, including Nissan’s Infinity and Jaguar Land Rover, will also launch local production soon. Honda might produce Acura models there. VW announced plans to add at least seven plants over the next several years that will increase production by 70%. It is also developing a low-cost car specifically for China, reportedly modeled on Renault SA‘s very successful Dacia. Additionally, the first domestic high-end competition has arrived with Qoros Auto, a six-year-old Chinese-Israeli joint venture that made its debut in March.

The bottom line

Chinese consumers bought more than 19 million cars last year. Buyers in the U.S. purchased 14.5 million, and those in Europe just over 12 million. If current trends continue, China could be responsible for nearly as many as the U.S. and Europe combined before the end of this year.

The scorching market of a few years back has undeniably cooled, but it is still growing and expanding in new directions. There are certainly more players, but the pie is very, very large. As a result, China should remain a key profit center for the auto industry for quite some time to come.

The article Automakers Rev Up in China as European Demand Crashes originally appeared on Fool.com and is written by Howard Rothman.

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