China Economy Update: China’s Auto Market Is The Real Deal

About:Ford (NYSE: F), Zhejiang Geely Holding Group, Volvo, General Motors, Toyota (NYSE: TM), Cash for Clunkers, Jim Trippon, China’s equity markets

When Ford (NYSE: F) announced in late March that it was selling its Volvo brand to China’s  Zhejiang Geely Holding Group for $1.8 billion, we told our subscribers that this was further proof of China’s desire to be more than just a bit player in the global automotive industry. The statistics are there to validate China’s ascent up the automotive totem pole. Just look at the March sales figures.

Auto sales in China during March rose 56% from March 2009 to a record 1.74 million units. The previous record of 1.66 million vehicles was set in January. For the first quarter, sales surged 72% to 4.61 million vehicles, according to the Wall Street Journal. Sales of passenger vehicles rose 63% in March and 72% in the first quarter.

While analysts are forecasting more benign sales growth for the rest of this year, it is clear that China has become a critical market for the likes of Ford, General Motors and Toyota (NYSE: TM) and that isn’t likely to change for years to come.

Uncle Sam used the “Cash for Clunkers” program to induce fresh car buying last year, but the program, while useful, provided only a temporary stimulus for auto makers. On the other hand, Beijing has implemented longer-lasting tax breaks and subsidies to spur purchases of new automobiles.

From an investors perspective, playing this trend with the traditional car manufacturers may not be as profitable of a strategy as it looks on the surface.