At many times over the last few decades, it has seemed like General Motors (GM) couldn't do anything right. The cars weren't competitive, the company's finances were a mess, and it often appeared as if GM's leaders were doing everything but mounting a credible challenge to the import brands that were eating its lunch.

We know where that all led: bankruptcy and the infamous taxpayer-funded bailout.

But lost in all that failure was a surprising success story: General Motors had become the No. 1 automaker in the world's largest auto market -- China.

GM's effort in China was one of its few bright spots in the last decade, and it has become a cornerstone of the new GM's global strategy. GM is still the leading automaker in China, and its market share continues to grow.

However, new government rules could put a damper on the General's success.

Taking Over Chinese Roads

Despite complex laws designed to favor local Chinese interests, GM has made itself a big player in China, which has grown to become the largest automotive market in the world. GM -- working together with Chinese joint-venture partners, as required by Chinese law -- has seen big success for its familiar Buick and Chevrolet brands, as well as with a hot-selling line of inexpensive commercial vans sold under the local Wuling brand.

Both China-only products like the Buick Excelle and familiar cars like the Chevy Cruze compact are regularly at the top of China's best-seller lists. In fact, GM and its joint-venture partners sold more vehicles in China last year than GM did here in the U.S.

GM is hardly the only Western success story in China, of course. Archrival Volkswagen's (VLKAY) sales are a close second to GM's, and global giants like Toyota (TM) and Honda (HMC) have strong presences as well. A latecomer to the party, Ford (F), has invested more than $5 billion in local factories in an effort to catch up -- and it's off to a good start: Sales of its just-introduced Focus have been brisk.

But GM is the biggest player, and its market share has been growing recently as its sales growth has outpaced that of the overall market. And that means that new restrictions on auto sales in key Chinese cities could hit GM harder than others.

Government Stalls the Engine

Anyone who watches China knows that its government can take a heavy-handed approach to addressing perceived problems, and its solutions to the smog and gridlock in its biggest cities have been no exception.

Shanghai's city government limits the number of new-vehicle registrations to 20,000 per month. License plates are sold at auction, and the prices typically run well into the thousands of dollars.

Early last year, Beijing's city government adopted a similar rule. And more recently, the huge (population near 14 million) southern city of Guangzhou imposed an even sharper limit literally overnight: Late on June 30, the government announced that new-car sales would be limited to just 10,000 a month, starting July 1.

Sales in Guangzhou had been running at about three times that rate, and dealers stayed open until well past midnight to accommodate the sudden rush of orders, according to a Bloomberg report. But Guangzhou's abrupt move raised a larger question: Would other Chinese cities adopt similar limits?

The growth of China's auto market has already fallen sharply. The 50%-plus growth rates that were routine until a couple of years ago are a fading memory now, with the market up just 2.9% through the first half of 2012. More limits on sales in cities could trim that growth rate further -- or, worse, send it into reverse.


Can GM Survive the Downshift?

GM said in a statement that it expects its growth in China to "remain steady in the second half" of 2012, driven by sales growth in interior provinces. The company has been investing heavily in new dealerships in China, hoping to find growth in areas outside of cities where car ownership is still less common.

That's good, because China is extremely important to GM's bottom line: While it splits profits with its joint-venture partners, GM still books well more than $1 billion a year from its Chinese operations.

That strategy may work out for GM. But as rivals like Ford continue to ramp up their Chinese presence, it's clear that growth in China is going to be a lot harder for GM to find in the future.

At the time of publication, Fool contributor John Rosevear owned shares of General Motors and Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors and have recommended creating a synthetic long position in Ford.


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151 Comments

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ram65kfb

Bush started this mess clean up for the automakers NOT Obama. Get your facts right. And we should stop buying anything made in China and our government needs to put things in line with fair trade.

July 15 2012 at 10:50 AM Report abuse rate up rate down Reply
holtnotesrah

Why dont we slam the brakes on everything made in China sold here in the US. It is sickening watching our country go down the tubes like this. Shame on our politicians supposed leaders etc.

July 13 2012 at 8:51 AM Report abuse rate up rate down Reply
1 reply to holtnotesrah's comment
Steven W Parker

Why don't we? Good question. Could it be there are not that many partriotic Americans left? There is your reason. Americans put national pride dead last.

July 13 2012 at 9:05 AM Report abuse rate up rate down Reply
wapitibowhunters

Is this the same GM that Obumma spent billions of taxpayer money to bail out?????? And he wants to deamonize Romeny as the oursorcer , give me a break.

July 13 2012 at 8:47 AM Report abuse rate up rate down Reply
1 reply to wapitibowhunters's comment
Steven W Parker

It is not outsourcing when you sell your product or service to another country, that is called EXPORTING you fool. And that is great for our country. Do you know what is bad? Idiot treasonously leaning non Americans like youself, who are too stupid to even add anything of substance or intelligence on a lame news board. Even the simplest ideas are over the heads of morons like you.

July 13 2012 at 9:12 AM Report abuse rate up rate down Reply
oldmanhoo

Solution? Very simple. Impose the same restrictions on Honda and Toyota in the US. In larger city markets, limit the number of sales/car titles to 20k of each....Toyota and Honda.

July 13 2012 at 8:02 AM Report abuse rate up rate down Reply
farmout56

I am surprised they can afford cars. I thought they were only paid a bowl of rice a day.

July 13 2012 at 7:36 AM Report abuse +1 rate up rate down Reply
eduardoc1

this is nothing new. right from the beginning china has stacked the deck in her favor and the dummy ceo's flocked to kowtow to her!

July 13 2012 at 7:08 AM Report abuse rate up rate down Reply
Mike

And, at some point, GM will be facing bankruptcy again.

July 13 2012 at 6:54 AM Report abuse -1 rate up rate down Reply
Anagaho

For whatever reason, the Chinese are infatuated with the GM Buick, it is noted that Chairman Mao drove a Buick
I guess monkey see monkey do!!

July 13 2012 at 6:32 AM Report abuse rate up rate down Reply
Tim Jones

they used the bailout money they got and moved production to china only to have them made in china and sent back here to sell them.... YOUR TAX DOLLARS MOVED GM TO CHINA......GET IT YET?

July 13 2012 at 2:48 AM Report abuse -3 rate up rate down Reply
1 reply to Tim Jones's comment
richard

Hey Tim, good luck with your third year of kindergarten. Just think if you keep trying, you just might be in first grade next year!

July 13 2012 at 7:42 AM Report abuse +1 rate up rate down Reply
George Wrigley

This ought to give one cause to pause. During WWII the United States out produced the rest of the world combined. 10,000 planes a month and a ship a day, tanks, vehicles and armaments of every type. The companies who accomplished were GM, Ford, Chrysler, Kaiser and a host of others.

As these companies, and many others, including aircraft companies locate in China to make their billions do you really think that they will not produce weapons for the Chinese if China feels it necessary.

These people have no loyalty the USA of any kind. Their CEOs own houses, property and have investments all around the globe. They will choose money over loyalty to anyone or anything. If war with China comes expect to be fighting against weapons produced by American companies.

July 13 2012 at 1:15 AM Report abuse -2 rate up rate down Reply