Could General Motors (NYSE:GM) – for decades, the world's top-selling car company – actually fall to third place soon?
It's not impossible. GM held the global sales crown as recently as 2011, but lost it to Toyota (NYSE:TM) last year. That wasn't a surprise: Toyota was on a roll after a couple of years of troubles, and GM lost market share in the U.S. while it was waiting for new products.
Toyota and GM have traded the lead back and forth for several years. But now there's a third contender for the global crown. With a quarter of 2013 already in the books, it's running close behind GM – closer than executives at General Motors would probably like.
VW's big push for global domination
That company is Volkswagen (OTC:VWAGY), the German giant that has ridden a strong presence in China to the top tier of the global sales charts. Now, VW has ambitions of grabbing the crown for itself before long.
GM's 3.6% increase in global sales kept it ahead of VW by about 90,000 vehicles in the first quarter. But VW has closed the gap significantly over the last couple of years – and it may well pass GM soon.
VW has said repeatedly that it aims to be the world's largest-selling automaker by 2018. It has already made tremendous progress: Mostly a regional player for a long time, VW got to the China auto party early, and built a huge presence by choosing the right local partners and following a savvy product strategy.
GM leads VW in overall sales in China, but about half of GM's China sales are low-margin commercial vans. VW's share of the passenger-vehicle market is bigger: 19.5% to 10% for GM last year. And its profits were substantially bigger, too, in China and elsewhere: VW's pre-tax profit in 2012 was $15 billion, best in the world. GM's? $7.9 billion, less than Ford's (NYSE:F).
Why is VW so profitable? First of all, it has a novel approach to product development that allows for significant cost savings, increasing profit margins on each car sold. Second, it has a strong luxury brand in Audi, which has become China's top-selling luxury brand with almost 30% of the market. Luxury cars are significantly more profitable than mainstream models.
Meanwhile, GM wants a different crown now
While VW has set its sights on the global sales lead, GM CEO Dan Akerson has said that he's not focused on the sales crown now. Instead, he aims to make GM the world's most profitable automaker.
In a sense, the two are aiming squarely at one another. And you can see it in their priorities: GM is investing heavily to turn Cadillac into a global luxury brand, and is overhauling its global product development process to cut costs and improve economies of scale. Meanwhile, VW is making a big push to increase its presence in markets outside of Europe, particularly in the U.S., and is discounting heavily to gain market share in troubled Europe.
It will be interesting to see how this plays out over the next few years. VW is already at the top of its game, in a sense, while GM is still a work in progress. And complicating this race still further is Toyota, which has the sales crown now – and which is also looking to emulate VW's product approach in pursuit of higher margins. Not to mention Ford, which isn't likely to win the overall sales crown – but which could complicate the race as it pushes to capture more market share in places like China.
One thing seems clear, though: As the fight for new-car buyers gets ever fiercer, consumers' choices should only get better and better.