The U.S. auto industry is in the best shape it's been in for years, allowing it to drive full throttle into China, the largest and fastest-growing auto market.
After bankruptcy and restructuring, General Motors (GM) and Fiat-owned Chrysler have drastically cut labor costs. Ford's (F) unions have OK'd similar reforms.
And with the average age of U.S. cars at a record-high 11.4 years, growing demand to replace clunkers has given automakers better pricing power here as well as the capital needed to make more gains in China.
"Now they're all revving the engine back up and driving into the Chinese market," said Mike Wall, director of automotive analysis at market tracker IHS.
About 20 million cars will be sold in China this year vs. more than 15 million in the U.S., the world's No. 2 auto market.
Sterne Agee analyst Mike Ward sees sales of 23 million cars in China in 2015. By then, GM is expected to build its market share lead there to 15% from 14.5% so far this year. Ford is seen taking a 3% share, up from 2.7%. (Chrysler's share should remain negligible.) GM and Ford "are not only participating in growth there, but getting more back in return (from initial investments) and are able to launch new vehicles in China," Ward said.
Meantime, Volkswagen's (VLKAY) No. 2 China share is seen just edging up to 14.3% from 14.1%, while Hyundai's will stay flat at 7.4% and Toyota's (TM) will dip to 3.2% from 3.6%. Market shares for Honda (HMC) and Nissan (NSANY) are expected to decline as well.
High-end electric carmaker Tesla Motor (TSLA), which is growing rapidly in the U.S., also sells cars in Hong Kong and plans to open its first showroom in mainland China later this year at an 8,000-square-foot site in Beijing.
Air pollution remains a problem in China, and analysts expect Tesla will be well received.
China's auto industry is highly fragmented with an estimated 100 companies, many of which are niche players with ties to global giants, making everything from passenger cars to buses, Ward said.
But as middle-class Chinese consumers aspire to move up the economic ladder, established brands such as GM, Volkswagen and Ford have leveraged their cachet to get a leg up on domestic rivals, which mostly target the low-priced segment.
One of GM's priorities this year is to push its Cadillac brand to meet demand in the growing luxury market, Bob Socia, president of GM China, told IBD via email. SUVs are another priority, and GM saw its sales of those jump 344% in July from a year ago.
Overall China sales for GM rose 11% in July vs. a year ago to 221,580, which includes joint venture partner sales. Buick jumped 26% to 66,208, and Cadillac soared 83% to 3,688.
"We know SUV's and luxury vehicles are growing in popularity today, and we have many new entries in both segments coming to market," he wrote.
As part of GM's aggressive product rollout, its joint ventures in China will invest $11 billion between now and 2016, and GM is building four new plants to increase local capacity.
With such a manufacturing base in China, GM also sees a chance to send more exports to emerging markets, Socia added.
Chinese companies have a small share of the domestic auto market, but Socia sees some doing well in the mid- to low-end segments while others are focused on SUVs.
The rise of domestic rivals like Chery and Geely, which each control about 2% of the Chinese market, could slow rapid gains by U.S. firms.
Ford saw July sales surge 71% from a year earlier. But growth was led by a 77% leap in sales of the Ford Focus compact car.