Nissan's (NASDAQOTH: NSANY.PK) sales were down 35% over year-ago totals. Honda's (NYS: HMC) fell 41%. Mighty Toyota (NYS: TM) posted a whopping 49% drop.

What market is this? It's China, where sales of Japanese cars fell off a cliff in September. China and Japan are disputing the ownership of a group of islands in the East China Sea, and that has led to an outpouring of anti-Japanese sentiment in China. Many Japanese brands, including the automakers, have seen sales fall sharply.

So has market leader General Motors (NYS: GM) gained ground as a result? Not exactly.


Not a bad month for GM, but...
GM isn't doing badly in China. Its sales in September were up 1.7% over September 2011, as a small business slump hurt sales of the company's Wuling commercial vans. The Wuling joint venture, which also builds the China-only Baojun brand of low-cost cars, accounts for nearly half of GM's sales in China.

Sales at GM's other principal joint venture, called Shanghai GM, were up 3.4% in September. Shanghai GM sells cars and trucks under GM's familiar nameplates: Buick, Chevrolet, and Cadillac. Sales of Chevrolet's bread and butter models -- the Cruze, Malibu, and small Sail -- were all solid, and the Buick Regal had its best month yet in China.

None of that is bad news. GM is holding its ground even as the overall auto market in China appears to be slumping. But there is a sense that GM is missing an opportunity to gain ground as its big Japanese rivals struggle - an opportunity that other rivals appear to be seizing.

...other rivals are taking better advantage
Things are very tough for the Japanese automakers in China at the moment. Toyota and Honda have seen dealerships vandalized, and there has been at least one case where protesters attacked a man who happened to be driving a Toyota, leaving him seriously injured. How long this anti-Japanese outburst will last is anyone's guess, but Japan's big three (Toyota, Honda, and Nissan) have all said that they are sharply reducing production in the Middle Kingdom for the time being.

Meanwhile, despite GM's so-so results, some non-Japanese brands have thrived in recent weeks. Korean automaker Hyundai (NASDAQOTH: HYMTF.PK) posted a 9.5% year-over-year gain in China in September. And the German luxury brands all posted big gains: BMW was up 55%, Mercedes-Benz 10%, and Volkswagen's (NASDAQOTH: VLKAY.PK) Audi brand saw a 20% gain.

Why didn't GM do better? Analysts have offered up a few explanations. One suggested that the Korean and German automakers are more competitive in the suddenly hot SUV market - an argument that sounds bizarre from an American perspective, until one realizes that GM only sells a few of its SUV models in China.

Another suggested that America is seen as an ally of Japan, where Korea and Germany are seen as more neutral. If Ford's (NYS: F) China sales results for September - which haven't yet been released as I write this - are as subdued as GM's, that theory might make some sense.

The upshot: GM could lose its China crown
It's possible that all of this will blow over, of course. The positions of the big global players in the Chinese auto market could return to roughly where they were a few months ago. But if current trends hold for more than a month or two, the big beneficiary is likely to be Volkswagen.

VW has been neck-and-neck with GM in China for some time, with each having about 15% of the market. So far, GM has been able to squeeze out a slight lead, thanks in large part to those Wuling vans. But if VW is able to gain ground at the Japanese automakers' expense - and the results for Audi suggest that it might - then it potentially could be in position to pass GM and take the 2012 China sales crown.

Does that matter? It might: GM makes a lot of hay, in China and elsewhere, out of its leadership position in the world's two largest auto markets (China and the U.S.). A perception that it has fallen behind VW could cause it to lose more ground.

In the near term, it's unlikely to have much of an effect on GM's global bottom line. But GM is already fighting the perception that it is losing ground both in Europe and here in the U.S. Adding China to that list won't help GM's stock price.

The article Why GM's China Lead Is in Trouble originally appeared on Fool.com.

Fool contributor John Rosevear owns shares of General Motors and Ford. Follow him on Twitter at @jrosevear . The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of General Motors, BMW, and Ford. Try any of our Foolish newsletter services free for 30 days . We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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frankieleunglaw

The primary cause of the decline in sales of Japanese cars is the South China Sea territorial dispute. Secondary causes are the weak economy and the traffic congestion in China which prompted the government to control the amount of thraffic on the over-crowded roads and polluted environment.

October 09 2012 at 5:36 PM Report abuse rate up rate down Reply