The U.S. is now only the second biggest auto market in the world

01/11/2010 1:28 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

China is now the biggest auto market in the world.

In 2009 sales of passenger cars, buses, and trucks grew by 49% to a total of 13.6 million units. With U.S. sales falling 21% in 2009 to 10.4 million that pushed the United States to No. 2.

Three things you should know about the Chinese auto market as you start looking for a play on the growth in this market.

First, some of the acceleration in sales growth this year was a result of government stimulus programs that are set to be reduced in 2010. In 2009 China cut the tax on new vehicles to 5% and offered cash bonuses—to the tune of a total $732 million—to anyone who bought a new car to replace an old one. (If it sounds like the U.S. cash for clunkers effort, it’s because the two very similar programs were both designed to goose auto sales.)  In December Beijing announced that it would increase the tax on new vehicles with engines of 1.6 liters or smaller to 7.5%.

Second, China had 117 automakers at the end of 2008. With many of the industry’s biggest companies, such as Volkswagen and Hyundai announcing plans for major expansion by 2011, the sector is ripe for consolidation.

Third, the vehicle mix in China isn’t the same as in the United States. For example, sales at General Motors’ (GM) joint venture with SAIC Motor, China’s biggest domestic automaker, are dominated by minivans that sell for as little as $4,000 each. Minivans made up about 60% of sales at the GM/SAIC Motor joint venture.

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