Is One of Detroit Automakers' Fears Finally Coming True?
Global automakers have long coveted China for its large consumer population and potential vehicle sales. Growth in China has been seen as growth for Detroit, and many executives hope that China will eventually become a second pillar of the auto industry, right alongside the lucrative North American market in terms of revenue and profits. But there was always one major concern about doing business with China, and it appears to be coming to fruition.
In the beginning, it all made sense. Detroit's General Motors (NYSE: GM) and Ford Motor Company (NYSE: F), along with other global automakers, wanted to get a foothold in the lucrative Chinese automotive market. That market grew to become the world's largest in 2009, and it's likely to carry global sales growth over the next two decades. China, on the other hand, wanted its domestic automakers to become more competitive on the global stage. To help foster more competitive Chinese automakers, foreign automakers were forced to partner with domestic Chinese companies to produce vehicles within the country or face steep tariffs to import their vehicles.
The sales potential for automakers such as GM and Ford was huge. In fact, GM now sells more vehicles in China than it does in the U.S., although the latter remains far more profitable. But the drawback was that the Chinese companies could eventually become competitive global automakers in their own right. And finally it seems that may be happening.
Source: Fool.com