GM Defying China Slowdown May Reclaim Sales Lead from Toyota

General Motors Co. (GM) and Volkswagen AG (VOW) expect to boost vehicle sales in China faster than the nation’s economic growth rate, defying government policies to curb sales and threatening Toyota Motor Corp. (7203)’s standing as the world’s largest carmaker.

GM, the largest U.S. automaker, plans to double sales in China to 5 million vehicles by 2015, the Detroit-based company said at this week’s Shanghai auto show. Germany’s Volkswagen, the biggest maker of passenger cars in China, said it may outpace industrywide sales growth of as much as 12 percent.

Carmakers are boosting sales and production plans even after the government ended industry subsidies and as cities including Shanghai and Beijing restrict new car licenses to fight pollution and ease traffic. GM’s sales target may enable it to retake the global sales title it lost to Toyota in 2008.

“You get used to not worrying about variations around the trend line,” Kevin Wale, GM’s China president, said yesterday. “In the past 10 years, China’s growth rate has only been below 10 percent in one year. The underlying trend is very strong.”

GM’s prediction of 5 million sales compares with Toyota’s goal of doubling deliveries in the nation by 2015 from 846,000 vehicles last year. The Japanese company sold 8.42 million vehicles globally last year, compared with GM’s 8.39 million.

Realistic Forecast

“If the market doesn’t have any major setbacks, GM’s forecast isn’t unrealistic,” said Ashvin Chotai, managing director of consultant Intelligence Asia Automotive. “We’ve been wrong in the past with conservative forecasts.”

China is already GM’s biggest market, with 2.35 million sales last year, compared with 2.21 million in the U.S. The carmaker aims for market share of more than 14 percent in China by 2015, Wale said yesterday in an interview.

Industrywide auto sales in the nation may grow as much as 12 percent a year over the medium term, Karl-Thomas Neumann, chief executive officer for China at Wolfsburg, Germany-based Volkswagen, said yesterday.

Volkswagen’s deliveries may increase at a faster rate, he said. “We’re bracing for more rather than less,” Neumann said.

The company sold 1.92 million vehicles in China and has said it aims to be the world’s biggest carmaker by 2018, surpassing Toyota and GM. VW sold 7.14 million vehicles globally in 2010.

China GDP Growth

The carmakers’ sales estimates compare with economic growth of 10.3 percent in China last year, a rate that may ease to 9.6 percent this year, according to the Asian Development Bank. The world’s second-largest economy expanded by a more-than-estimated 9.7 percent in the first quarter of this year, even after the government raised interest rates to rein in inflation.

China overtook the U.S. as the world’s largest auto market in 2009, when sales jumped 46 percent from the previous year. The growth slowed to 32 percent last year as the government began phasing out tax breaks and subsidies for car buyers. The market may expand by less than a previous forecast of 10 to 15 percent this year, Dong Yang, vice chairman of the China Association of Automobile Manufacturers, said this month.

Carmakers are unworried about lower growth because China, the world’s most populous nation, still dwarfs all other markets and two-thirds of Chinese customers are first-time car buyers, said Joe Hinrichs, head of Asia Pacific and African operations at Ford Motor Co. (F)

Catching Toyota

“A market as big as this one, even 5 to 10 percent growth is very significant,” Hinrichs said. “I’d take 10 percent growth forever.”

Ford plans to add 15 models in China by 2015, the company said April 15. Hyundai Motor Co. (005380) said yesterday it’s considering building a fourth plant in Beijing, while Nissan Motor Co., the biggest Japanese automaker in China, said it expects sales to rise to 1.5 million in 2012 from 1.02 million in 2010.

GM and VW’s growth plans may help both automakers catch up with Toyota, whose growth has lagged behind rivals in China.

The Toyota City, Japan-based automaker may miss this year’s target to sell more than 900,000 vehicles in China after Japan’s record earthquake on March 11 caused parts shortages, Masayoshi Hori, the automaker’s executive coordinator for China, said yesterday at the Shanghai show.

While Toyota would like to increase its market share, the company is focused on improving vehicle quality, service and customer satisfaction, Hori said.

“We’re not in the business of prioritizing market share,” he said.

Chinese Car Companies

Chinese car companies are also planning expansion. SAIC Motor Corp., GM and VW’s local partner, is aiming for 6 million deliveries by 2015, compared with 3.6 million last year, it said yesterday. Dongfeng Motor Group Co., the partner of Nissan and Honda Motor Co., aims to produce and sell 5 million models a year by 2015, it said yesterday.

SAIC and Great Wall Motor Co. also aim to raise sales outside China. Shanghai-based SAIC said it’s aiming to sell 800,000 cars a year in other countries by 2015. Great Wall said exports may account for 30 percent of its sales by then.

While automakers’ growth plans are realistic, government measures to limit car sales in cities may become a concern, Chotai said.

China will start curbing vehicle ownership in cities with more than 10 million people from 2011 to 2015 to ease congestion, China’s Economic Observer reported March 31. The government has also passed a new law requiring vehicles with larger engines to pay more taxes, starting next year.

License Restrictions

Beijing’s government said Dec. 23 it would set a monthly quota of 20,000 new vehicle licenses in the Chinese capital.

“Beijing demand will be down 45 percent this year just because of license-plate restrictions, and more cities will follow,” Chotai said. “Cities in Guangdong province, Shenzhen, Chengdu, Shanghai are all possibilities because of high congestion rates and levels of pollution.”

Tightening measures to slow China’s economy may also deter car sales. The nation increased interest rates four times since October to curb inflation that accelerated to a 5.4 percent annual pace in March. Liquidity remains “excessive,” central bank Governor Zhou Xiaochuan said in Beijing on April 18, a day after the People’s Bank of China announced the fourth increase in lenders’ reserve ratios this year.

That may not be enough to slow rising auto sales or Toyota’s replacement as the leading global automaker, said Koji Endo, an analyst at Advanced Research Japan in Tokyo.

“Automakers ought to get out there and grab market share, because the Chinese market will grow unless something unexpected happens,” he said. “You can expect the Chinese market to expand to something like 40 million by 2020, and obviously there’s a possibility Toyota may be surpassed.”

--Liza Lin, Makiko Kitamura, Andreas Cremer, Tian Ying, Yuki Hagiwara, Jamie Butters in Shanghai, and Terje Langeland and Anna Mukai in Tokyo. Editors: Ian Rowley, Kae Inoue

To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.