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Can General Motors Beat VW in China?

The Cadillac SRX has done well in China -- but overall Cadillac sales in the Middle Kingdom are dwarfed by those of VW's Audi brand. Source: General Motors Co.

Who's the biggest player in the world's biggest auto market?

For years, the answer was General Motors  (NYSE: GM  ) , which held the dominant position in China's fast-growing market with familiar brands like Buick and Chevy -- as well as some big-selling brands unique to China, like the Wuling brand of small commercial vehicles. 

But that changed last year, when Volkswagen Group  (NASDAQOTH: VLKAY  ) , powered by the popularity of its VW and Audi brands, passed GM in total China sales for the first time in nine years. 

Can GM retake the lead? As Motley Fool senior auto specialist John Rosevear notes in this video, it's not looking good for GM so far in 2014 -- but both companies are making huge investments with an eye to capturing even more sales in coming years.

A transcript of the video is below.

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John Rosevear: Hey Fools, it's John Rosevear, senior auto specialist for China has become the world's largest automotive market, eclipsing the United States and Europe in annual new-vehicle sales.

But who's the biggest-selling automaker in China?

Last year the title went to Volkswagen Group, which finally surged past longtime leader General Motors after nine years in second place. And so far this year, VW has held on to its lead. VW's sales in China in the first half of 2014 were up 18% to a little over 1.8 million vehicles, the company said. But GM isn't all that far behind. GM's sales through June are up 11% to 1.73 million vehicles.

Both automakers are locked in a three-way race with each other and with Toyota for the global sales crown. Toyota is far behind both GM and VW in China but leads in Southeast Asia, has about half the market in Japan, and is well ahead of VW here in the U.S., while VW has the dominant market position in Europe and of course GM remains the market leader here in the U.S. 

So China, which is still growing rapidly and where brand preferences are still evolving to some extent, is really a key to the global sales race for both VW and GM. And both are spending big on future growth.

VW said earlier in July that it plans to build two new factories in China to build compact cars. VW thinks it may sell more than 3.5 million cars in China this year, and thinks that its annual sales still have room to rise substantially over the next several years. Meanwhile, GM is in the process of building five new factories of its own in China, and has planned $12 billion dollars of new investments between now and 2017. These investments will be funded out of GM's ongoing profits in the region, which have been quite strong, running around $2 billion dollars a year give or take even after GM splits with its joint venture partners.

GM China chief Matt Tsien said back in April that GM will introduce "more than 60 new and refreshed models" by the end of 2018, a massive boost for the GM's brands. Those brands of course include the Buick, Chevrolet, and Cadillac brands that are familiar to us, as well as some China-specific brands including Wuling. Wuling is a three-way joint venture between GM and two Chinese automakers that makes light commercial vehicles, think inexpensive minivans for delivery services and tradespeople. The Wulings are very popular, GM has the contractual right to count all of Wuling's sales as its own, and that has greatly boosted GM's total sales numbers in China.

But none of GM's brands sell as many vehicles as the Volkswagen brand itself, and VW's Audi brand is the clear leader in China's big and growing luxury-car market. But with big investments coming from both VW and GM, as well as up-and-coming players like Ford  (NYSE: F  ) , it's clear that the race for market dominance in China is far from over. Thanks for watching.

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John Rosevear

John Rosevear is the Fool's Senior Auto Specialist. John has been writing about the auto business and investing for over 20 years, and for The Motley Fool since 2007.

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