A recovering GM is losing ground at home by Doron Levin @FortuneMagazine May 11, 2012, 1:23 PM EST E-mail Tweet Facebook Google Plus Linkedin Share icons FORTUNE — General Motors Co.’s share of a strengthening U.S. vehicle market has taken a hit so far in 2012, a sour note in its remarkable recovery story. A refocused GM is facing constraints to its ability to produce vehicles as well as tougher competition from domestic and foreign automakers also on the mend. Help for GM GM could arrive soon. Its tony Cadillac division in coming months will benefit from two key new-model introductions: a large XTS sedan designed to compete with models like the Lexus LS460 and Mercedes S-Class as well as a smaller ATS, which will go head to head with models like the BMW 3 Series and Audi A4. GM’s U.S. market share dropped to 17.7% from 19.6% through the first four months of the year. Each point of share represents roughly 140,000 vehicles annually in today’s market. Cadillac sales have fallen almost 24% compared with the same period last year. MORE: Meet VW’s secret weapon Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor, Michigan attributes GM’s lower market share to a cutback on new-model investment during its 2009 bankruptcy restructuring and capacity constraints, including limitations on the number of four-cylinder engines the automaker can build. “It’s very complex,” he wrote in an email and “not the fault” of top GM management. During the latest economic downturn 32 automotive plants representing more than 3 million units of production closed down in the U.S. and Canada, according to a report this week in Automotive News, a trade publication. GM, using extensive overtime labor, is operating at full capacity in North America. That means that the company simply can’t build many more cars and trucks than it already is. Some plants that were mothballed, such as a factory in Spring Hill, Tennessee, might be brought back into service. GM is not alone. Ford F , also experiencing tight production capacity, has given up 0.8% of a point of share. But Chrysler, 2012’s comeback star, has posted a strong two-point bounce in U.S. share on 33% better sales this year. Sales of the Chrysler 200, Chrysler 300 and Jeep Grand Cherokee are soaring, on the strength of powerful marketing campaigns and successful new launches. MORE: Toyota is putting Prius to the test The Japanese auto industry, meantime, is recovering rapidly from the effects of last year’s earthquake and tsunami. Toyota TM , in particular, has sold 12% more vehicles in the U.S. this year and is forecasting that its corporate profit will more than double in fiscal 2013 to $9.5 billion. Toyota last year relinquished the title of top seller of vehicles globally to GM. A more competitive Cadillac should prove a boost to GM’s finances since luxury cars are disproportionately profitable. It could also help stanch or reverse the loss of share. GM has attempted to position Cadillac as a worldwide luxury brand, so far with little success. A growing Chinese market may prove more welcoming, especially with a wider ranger of models. But Europe’s economic troubles could mean that BMW, Mercedes, Audi and VW will redouble efforts to sell aggressively in the U.S., where consumers finally are starting to boost automotive spending after several timid years. European brands in the aggregate are up 23% for the year and have gained a point of market share already. MORE: GM sees self-driving cars sooner, not later The next few months of the U.S. presidential campaign promise much debate over industrial policy, especially the three-year-old restructuring of Detroit. Facing a tough picture, GM is surely hoping that its results will fuel an argument over which candidates deserve most of the credit, not the blame.