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Economic Forecasts

China Car Market Beckons GM and Ford

The two top Detroit carmakers look east for healthy sales growth -- and ultimately, a larger market than the U.S.

For U.S. automakers General Motors and Ford, China’s streets are paved with gold. While sales in the U.S. are plunging, they’re soaring there: GM’s passenger car sales are up 30% this year and Ford’s, 25%.

The Chinese auto market will rocket past the U.S.’ over the next decade or so. Consumers in each country now buy about 10 million vehicles a year. The U.S. market will slowly regain its prerecession level of about 16 million by 2015 or so, then creep a bit higher in successive years. In contrast, the Chinese will gobble up 18 million or so cars in 2015 and a huge 25 million a year by the early 2020s.

“Undergirding this market is the continuing movement of a vast number of Chinese consumers into the middle class, and this trend should continue for many years,” says David Cole, chairman of the Center of Automotive Research, an automotive consultancy.

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Sales of GM and Ford cars in China will help buoy the two Detroit automakers while they continue to downsize their U.S. operations to reflect a much diminished share of new vehicle sales in the U.S. -- now around 35% combined, versus more than 50% at the decade’s start.

Heftier income from the sale of cars in China also will enable the two automakers to spend more on developing more competitive vehicles for the U.S. market. That’s especially critical for GM, which is in the midst of a wholesale reconstruction of its business plan after its trip to the bankruptcy court.

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“Strong vehicle sales in China won’t fix all of GM’s problems, but they will offset a lot of weakness in its North American operations,” says George Magliano, director of automotive industry research with IHS Global Insight, a business consulting firm.

China already is GM’s largest foreign market and it soon will be Ford’s top one, too, surpassing Brazil. With the Chinese auto market expected to stay red hot next year, GM’s car sales there should hit around 700,000, equal to roughly one-third of the automaker’s anticipated U.S. total in 2010. The quarter-million-plus cars that Ford will sell out of Chinese showrooms in 2010 will be roughly 15% of its U.S. sales. Those numbers are a far cry from just five years ago, when GM’s and Ford’s auto sales in China were barely on the radar screen.


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