With vehicle sales in the U.S. surging, the race to crown this year's No. 1 automaker is off to a fast start. It comes down to three players: Toyota (TM 0.09%), which reclaimed the title from General Motors (GM +0.35%) in 2012, and Volkswagen (VLKAY 0.49%). Volkswagen was brazen enough to claim it would top all automakers globally by 2018. The recession threw in an initial speed bump, but Volkswagen has since had three strong years and continues to build momentum globally.
With one fourth of the year in the books, let's break it down and see who has the early lead. Let's also look long-term and see if Volkswagen could end up No. 1 as soon as 2018.
By the numbers
Toyota takes the early lead, reporting sales of 2.43 million vehicles in the first three months of 2013. That was good enough to narrowly top GM, which reported 2.36 million, and Volkswagen, at 2.27 million. Comparing those numbers to the same time period in 2012, you can see a slightly different trend. Toyota sales declined 2.2%, while GM and Volkswagen surged 3.6% and 5.1% respectively.
We can quickly name one large reason behind Toyota's decline -- China. Its sales dropped 13% from a year earlier. After a territorial dispute between China and Japan, Toyota and Honda vehicle sales tanked in the region, and haven't fully returned. Ford, GM, and Volkswagen were all beneficiaries of this, and quickly ate up the market share.
Racing forward
Throughout the rest of this decade, we're going to witness a drastic change in the emerging markets and how their sales stack up against mature markets. Europe, once a global bright spot in vehicle sales, is projected to remain flat or have minimal growth -- maybe reaching 15 million vehicles by 2020. The U.S. is expected to grow sales to about 20 million vehicles. Meanwhile, In addition to China's 19.3 million vehicles sold last year, it's expected to grow its sales by the size of Europe's current market – roughly 12 million vehicles.
U.S. and China are key for this decade
Success in the U.S. and China will largely determine which automaker finishes on top by 2018. This bodes well for GM and Volkswagen, which both enjoy dominant positions in the Chinese market. GM sells a wide range of vehicles, and Volkswagen's Audi – the company's high-margin luxury line – is beloved by the Chinese.
Both are gunning to increase their presence in the rapidly growing region. Volkswagen announced it will spend nearly $13 billion investing in seven new plants in China -- five of which start construction this year. GM also aims to grow its production capacity, adding four plants over the next three years.
One thing GM has over Volkswagen is that it already has a dominant position in the U.S. market. That said, Volkswagen has made strides here recently, selling 580,000 vehicles in 2012 – up 31%. That's still a long shot off of the company's goal to top 1 million, which it will need to reach to have a shot at becoming the global leader.
Bottom line
There's plenty of time before 2018 for things to go awry with any one of these three automakers -- and choosing which one will end up on top is no easy task. I'll go out on a limb and say that Toyota, which has enjoyed its recent reign as No. 1, will be relegated to third place. I expect GM to finish cleaning up operations and improve margins. It's also redesigning, replacing, or refreshing 90% of its vehicles by 2016. Once GM's entire vehicle portfolio dust-off is complete, I expect a substantial increase in vehicle sales. Only time will tell if it will be enough to overtake Toyota and hold off Volkswagen.
The automotive industry is cyclical, and there's no doubt it's beginning to rebound from the lows seen in recent years. Companies are now leaner and more profitable -- finally giving us a reason to consider them as potential investments. Investors who are able to choose the right automaker and hold long term will realize large gains for their portfolio. What do you think ... which one ends up on top?
