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GM Does OK in Emerging Markets, but Toyota, Volkswagen Doing Even Better

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To secure its future in the world's big auto growth markets, GM has to think about borrowing more than one executive from its German and Japanese rivals.

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You would not know it from driving through Los Angeles or watching televised sports, but America is not the world's biggest auto market any more, at least by units sold. That mantle passed quietly to China after the 2008 crisis. The No. 2 world economy gobbled 19.3 million new motor vehicles last year, compared to 14.5 million for the USA.

That sales gap can probably only widen, not because China is so great, but because it is still so poor and car-hungry. The US is home to nearly as many vehicles as people, 797 for every 1,000 units of population. That statistic for China is 85.

So it is not hard to divine where global automakers will find growth in the coming decades. Other big emerging markets are minor players compared to China: Brazil bought 3.8 million cars and trucks last year, Russia a hair under 3 million. But at less than 300 vehicles per 1,000 people, both those countries also have a big gap to fill with the auto-sated developed economies.

A look at brand-by-brand 2012 sales in these key markets, which have trickled in from various sources this month, is therefore a useful cursory health check on big automakers. The news in a nutshell: Detroit, and particularly General Motors (NYSE:GM), is holding its own respectably, but is being outpaced by Toyota (NYSE:TM) and made a fool of by Volkswagen (PINK:VLKAY), which last year was the beast of emerging markets.

Two general trends are worth noting before moving to the competitive landscape. The first is industry-positive: Global brands are gaining market share in the key emerging markets at the expense of local lines like Wuling (HKG:0305) in China or Lada (MCX:AVAZ) in Russia. The exception is India, where domestic manufacturers dominate.

The second trend is less comforting: Despite stereotypes of Chinese or Russian nouveaux riches indiscriminately spending ill-gotten gains, real-life auto sales are dominated by low-margin economy models, according to the highly useful website bestsellingcarblogs.com. The top-selling foreign models in China are the Ford (NYSE:F) Focus and VW Jetta, in Russia the Hyundai (PINK:HYMLF) Accent (renamed Solaris for the local market) and the Focus.

Despite the success of its compact, Ford remains a smaller player in the emerging markets for the moment, ranking 14th in Chinese sales, eighth in Russia, and No. 4 in Brazil. GM is a much weightier presence. Among many bad decisions in its pre-bankruptcy years, the colossus of Detroit had the wisdom to go hard on China, becoming the dominant foreign manufacturer there, at least until VW's recent surge.

GM had a decent 2012 in China. The company put its sales there at 2.84 million, up 11% while the market expanded by 4.3%. Better still, most of the growth came from its 50-50 Shanghai-GM joint venture, which produces upscale-ish localized versions of Chevys and Buicks. GM also owns 34% of Wuling, which, as the Wikipedia entry has it, "is best known for its pint-sized commercial offerings sold in the poor interior." Sales there were flat last year.

But VW had a tremendous year in China, increasing sales by 25% to reach a virtual dead heat with GM at 2.81 million. (China is now the biggest market for both manufacturers.) The German powerhouse surged across the price spectrum, from affordable Skoda to deluxe Audi (FRA:NSU), which strengthened its hammerlock on the rich Chinese minority. Audi sales jumped 30% to some 405,838 vehicles, partially disproving the rule that luxury cars do not sell in bulk in emerging markets. GM paid the ultimate compliment to its rival by hiring VW's ex-China boss Karl-Thomas Neumann as CEO of its flailing Opel division in January.

Herr Neumann aside, VW also outperformed GM in Russia – where it grew 40% last year compared to 18% -- and Brazil, 10% expansion vs. 2%.

Toyota, somewhat surprisingly, has only a fraction of GM's or VW's sales in the three key emerging markets. But it is growing faster. Chinese orders for the Japanese flagship jumped by 41% last year to 746,000, according to Chinaautoweb.com. Toyota's sales in Russia grew by 28%, in Brazil by 15%. The company may experience some headwinds in China going forward thanks to a Sino-Japanese war of words over disputed deserted islands in the Pacific. But that conflict will hopefully die down, and it is not an ideal way for GM or anybody else to gain business.

General Motors and the Detroit auto establishment have been giving themselves some reasonably well-deserved pats on the back lately following their brush with death just a few years ago. But to secure its future in the world's big auto growth markets, GM has to think about borrowing more than one executive from its German and Japanese rivals. Whatever Volkswagen is doing there, it's working.
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