Surprise—the Chinese Love General Motors
I’m not trying to be facetious by saying China loves General Motors Corporation (NYSE/GM); in spite of what you may think, this statement is correct.
There are numerous buy side analysts who still dislike the stock despite the progress made over the last few years since the company went through bankruptcy and made a major overhaul of its operations and product lines.
GM sold over nine million vehicles in 2011 and accounted for 11.9% of the global market share. In the first quarter of 2012, GM sold 2.3 million vehicles and trailed the 2.5 million sold by global rival Toyota. In the U.S., GM’s market share fell to 17.5% in the first quarter, the lowest U.S. share in about 90 years.
But what’s ironic is that if it were not for China, GM would likely be hurting, according to my stock analysis.As I said, the Chinese love their GM cars; the brand is considered to be prestigious and much more favorable than the Chinese-made clunkers.
Based on stock analysis, the Chinese auto market has been slowing, especially following the decision of the government to eliminate credits for fuel-efficient cars in 2011.
Apparently, there are just too many vehicles on Chinese streets, and having been there, I can say with confidence that driving on China’s roads is an adventure.
The slowing in the Chinese auto market is evident, based on my stock analysis.
In the first quarter of 2012, auto sales fell 1.2% in China. In 2011, auto sales increased a tepid 2.5% year-over-year to 18.5 million units, down from staggering 30.0% and 50.0% growth in 2010 and 2009, respectively, according to the China Association of Automobile Manufacturers (CAAM). The growth in 2011 is the lowest since 1999 and clearly poses issues for car makers, according to my stock analysis.
You may want to drive to the exits, but that would be an investor mistake, as, based on my stock analysis, China’s auto market makes an excellent contrarian play, especially for the foreign automakers.
As I said, GM is a major player in China. The company had three of its vehicles on the list of top 10 selling cars in China in 2011, including the “Buick Excelle” as the top seller and the “Chevrolet Sail” at number two. The other top 10 are all foreign carmakers, except Chinese BYD Auto Co. with its “Great Wall Haval” at tenth position.
The world’s automakers know that, to grow, you need a presence in China’s auto sector, whether in a venture with a Chinese company or as a standalone manufacturer of vehicles.
GM is focused on China, as it feels the steady rise in the country’s middle class will drive the demand for cars. The automaker announced plans to invest a minimum of $5.0 billion in China in an effort to reach a sales target of five million vehicles by 2015.
According to my stock analysis, these are lofty ambitions for GM, but I would be impressed if the company could reach this target.
And in spite of the slowing in the Chinese auto market, I view dips as an opportunity to buy with an eye to the long-term, based on my stock analysis.
GM could turn out to be a buy low/sell high opportunity.
In my stock analysis, there are numerous ways to play the Chinese auto sector. You can buy an auto company, like GM, with exposure to China or the many Chinese auto stocks.