Cars: Cadillac Surges, Japanese Sputter
The latest monthly sales figures are showing that sales for GM’s (NYSE: GM) luxury Cadillac division zoomed ahead in the first half of 2013, while Japanese car makers are suffering from a prolonged downturn following a diplomatic dispute between Beijing and Tokyo last year. Neither of these trends is particularly new, but what’s noteworthy is the speed of each. In GM’s case, the rise of sales for its Cadillac cars seems faster than many expected. Meantime, the Japanese sale slump also seems more prolonged than many were predicting.
Let’s start off with GM, which has reported its sales for both June and the first half of 2013 were up a respectable 11 percent. (English article) The latest overall figures actually marked a slowdown from a faster start to the first 4 months of 2013 when sales rose around 15 percent. That slowing has accompanied a broader slowdown in China’s auto market as economic growth moderates.
But within the bigger number, GM’s Cadillac sales jumped 35 percent in the first half of the year, including a 69 percent jump in June. Of course I should add that June’s Cadillac sales totaled just 4,244 units, meaning GM is coming off a very small base from the previous year. The big jump in Cadillac sales comes as GM embarks on an aggressive build-up of its luxury car business in China, in an attempt to catch up with the big German automakers like Audi (Frankfurt: VOWG) and BMW (Frankfurt: BMWG).
As part of that build-up, GM just last month broke ground on a $1.3 billion plant that will be able to make 160,000 Cadillac cars per year. (previous post) The company said at that time that it ultimately hoped to sell about 250,000 Cadillacs in China annually by 2020, accounting for 10 percent of the market.
I’ve previously said GM could face an uphill road achieving its ambitious goals, especially because it’s years behind many of its German rivals. But I do also think that GM has a strong sales team and potent distribution and service networks that it could leverage as part of its Cadillac expansion, boosting its chances for success. I doubt it will control 10 percent of China’s luxury car market anytime soon, but it could realistically hope to get up to 5 percent share by 2020.
From GM let’s take a quick look at the Japanese automakers, which collectively saw their sales decline 4.9 percent in the second quarter of this year, marking the fourth consecutive quarterly decline. (English article) Among the big 3 Japanese automakers, Nissan (Tokyo: 7201) and Honda (Tokyo: 7267) both saw sales decline for the quarter, while industry leader Toyota (Tokyo: 7203) actually managed to eke out a 0.6 percent gain.
The trio have suffered since last October, when a territorial dispute between Beijing and Tokyo flared up, resulting in widespread protests in China and boycotts of Japanese goods. The Japanese car makers saw their sales plunge by more than 40 percent at the height of tensions, though sales have been steadily coming back since then.
The weakness in the second-quarter figures doesn’t come as a huge surprise. But the fact that sales are still falling for 2 of the 3 top automakers does seem to indicate that anti-Japanese sentiment may be lingering longer than many expected.
Media are reporting that some of the Japanese automakers may shift their sales strategies slightly to focus more on south China, where anti-Japan sentiment has been weaker historically. (English article) But regardless of how they tweak their China plans, it’s clear that historical tensions between China and Japan will continue to be a major risk factor for the Japanese automakers for probably at least the next decade and possibly even longer.
Bottom line: GM’s China Cadillac sales should continue to surge for the next 2 years, while Japanese car makers will continue to suffer due to lingering anti-Japanese sentiment.
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