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Will GM Lose to Volkswagen in China?

Zacks Equity Research

General Motors Company (GM) is facing stiff competition in China, the world’s largest automobile market, from German automaker Volkswagen AG (VLKAY). Reportedly, both the automakers have crossed sales volume of 3 million units in the nation, with a few days left for year end.

However, Volkswagen achieved the milestone a week earlier than General Motors. Thus, the German automaker is expected to beat the American auto giant, in terms of total sales in China in 2013.

According to Bloomberg, this is the first time in nine years that Volkswagen will surpass the sales of General Motors in China. This will make Volkswagen the leading foreign automaker in the nation.

Through November, Volkswagen surpassed General Motors’ sales in China by 70,000 units. The German automaker also witnessed a 17% year-over-year increase in sales in the country in the first nine months of 2013.

While coming second in China might be a small setback for General Motors, it will easily beat Volkswagen in terms of global sales as the latter generates low sales in the U.S., the second largest automobile market after China.

Ford Motor Co. (F) is expected to be third in terms of sales in China, followed by Toyota Motor Corporation (TM). The competition among foreign automakers remains stiff in China as the huge size of its automobile market offers the opportunity to offset the weak sales in Europe.

General Motors is aiming to boost the annual production capacity in China to 5 million vehicles and triple its exports from Chinese plants by 2015. In April, the company revealed plans to build four plants in the country to augment production capacity. General Motors and its joint venture partners in China intend to invest $11 billion in the country by 2016 and launch about 17 new and upgraded car models as part of their major expansion program. In 2014, the automaker is planning to introduce four new Chevrolet models in China.

Meanwhile, Volkswagen is targeting investments worth $25 billion till 2018 in China, as per Bloomberg.

Both General Motors and Volkswagen carry a Zacks Rank #3 (Hold).

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