This Chinese Sector’s in the Fast Lane to Profits

You don’t have to tell General Motors to go to China and look for growth opportunities. In fact, you don’t have to tell anyone. The world’s automakers know that, to grow, you need to have a presence in China’s auto sector, whether in a venture with a Chinese company or as a standalone manufacturer of vehicles. The auto sector in China remains strong, as the country is the world’s largest auto market with an estimated 16.5 million vehicles this year, according to the Chinese industry association. Foreign auto companies looking for growth are expanding in China.

General Motors is seeing continued strong and impressive growth in China. The company has made two straight quarters of profits and is looking to launch its shares soon.

In the first quarter, GM reported greater sales in China of 1.21 million vehicles versus 1.08 million in the United States, a first for the company. Watch for some slowing, as sales of vehicles in June slowed to 10.9%, down from 25% in May and 34% in April, representing two straight months of declining growth. To deal with the slowing growth, China announced that it would provide subsidies of around $440.00 for buying some fuel-efficient vehicles. GM remains under U.S. government control, as it tries to reinvent itself and pay back the government loans. To do this, GM knows it must grow outside of its domestic market in the U.S. and Canada.

GM predicts vehicle sales in excess of two million in 2010, up from 1.83 million vehicles in 2009. Germany-based Volkswagen said it would invest about $8.0 billion in China over the next three years. Volkswagen is aiming for sales of two million vehicles by 2018. Japan-based Nissan Motor wants to sell 900,000 vehicles annually by 2012, according to Bloomberg.

Advertisement

Only about 41 in 1,000 Chinese own a vehicle in China, according to some industry pundits. Given this, there is clearly ample room for growth, especially as the income levels continue to rise. This trend will continue to drive vehicle sales going forward to the point where China will likely remain the top auto market in the world.

The area of expensive or luxury vehicles is booming in China — it’s one of the top markets in the world. The rich are getting richer and they have plenty of cash to spend on expensive cars. The sale of luxury cars increased around 65% year-over-year in the first quarter of this year, according to auto industry researcher J.D. Power and Associates. The rate is well above what we are seeing in other industrialized countries. The middle class is growing at a staggering pace, with more millionaires popping up each day. When consumers find wealth, a big-ticket item they buy is a vehicle.

There are numerous ways to play the Chinese auto sector. You can buy an auto company with exposure to China, such as the major global automakers. Alternatively, you can also buy Chinese auto-parts-makers. Some Chinese auto plays that I have covered in the past include Brilliance China Automotive Holdings (OTCBB/BCAHY.PK), China Automotive Systems, Inc. (NASDAQ/CAAS), Wonder Auto Technology, Inc. (NASDAQ/WATG), SORL Auto Parts, Inc. (NASDAQ/SOR), and AutoChina International Limited (NASDAQ/AUTC).