Open and Booming Chinese Auto Market Means Lower Margins For Automakers

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Includes: GM, HMC
by: Mick Weinstein

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

HEARD IN ASIA: China Car Market Gets Bumpier

  • Summary: The once highly-protected Chinese car market has become far more open to competition, with more foreign car makers entering the high growth market and a number of upstart Chinese manufacturers making waves as well. Prices are falling as quickly as demand is growing -- passenger car sales rose more than 36% in the first half of 2006 over the year-ago period. GM reported profit of $327 million from China sales last year, down 22% from 2004. Volkswagen lost $151 million there in 2005, after profiting by more than that amount the year before. Japanese manufacturers appear best able to cope with the dwindling margins in China, though GM and others are cutting prices in an effort to remain competitive. Most Chinese are buying their first car, so brand loyalty is a minimal concern, and price is far more important than in most western developed markets.
  • Comment on related stocks/ETFs: Another challenge facing GM... Note that Honda (NYSE:HMC) has significant activity in China, and may be the best way for a US investor who can't access Hong Kong markets to play the growth of the car industry in China. Interestingly, on a recent conference call, McDonalds executives discussed how the growing drive-thru market is spurring its growth in China.

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Tagged: , Auto Manufacturers - Major
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