U.S. Automakers Face Fuel-Efficient Chinese Cars

An area that I continue to like in China is the country’s growing auto industry, which I believe will offer excellent growth opportunities going forward. The country’s auto production and sales surged over 20% year-over-year in the first quarter, according to the China Association of Automobile Manufacturers.

 Major automaker General Motors Corporation (NYSE/GM), facing growth issues domestically and looking for growth internationally, is currently the largest foreign car manufacturer and remains the best bet for a large-cap U.S. auto play on China.

 In the first quarter, there were 2.19 million vehicles made in China, up 22.6% year-over-year, according to government officials. With the strong surge in auto sales, China has become the second-largest market for new vehicles in 2006, trailing only the U.S. GM announced it would reduce its presence in Belgium and shift resources to India and China, according to “The Wall Street Journal.”

 A Chinese auto play that I like is Brilliance China Automotive ADS (OTC/BCAHY.PK). The company had recently voluntary delisted its American Depositary Shares from the New York Stock Exchange as a result of low trading volume and cost.

 The company is situated in the right place at the right time. Recent positive news surfaced that the sales of BMW brands in China had surged 38% in the first half compared to the same period in 2006. Brilliance China Automotive has a venture with BMW to manufacture the BMW “3 Series” and “5 Series” with an annual capacity of 30,000 units and has current plans to increase capacity by another 20,000 units per year via a second plant.

 There is also news that ChangAn Auto Group Inc., the top maker of small cars in China, will soon launch small $10,000 sub- compact cars in the U.S. market. Just think about the negative impact of Japanese and Korean cars in the U.S. marketplace. I expect demand will be strong in U.S. markets for cheap fuel- efficient cars, and this may place more pressure on U.S. automakers.