(Bloomberg) -- General Motors Co. has been laying off staff in China and will soon meet with local partner SAIC to plan a larger structural overhaul of its operations there, a recognition the Detroit automaker is unlikely to see its sales return to 2017 peak levels.
GM is cutting staff in Chinese market-related departments, including research and development, according to people familiar with the matter. In the coming weeks, GM and SAIC will discuss possible capacity cuts as part of a strategic redirection for American nameplates sold in China.
The reassessment represents a major shift in strategy for GM, which earned billions of dollars in China as recently as 2018. The automaker is pulling back as many foreign brands are struggling with a profusion of local competitors in the world’s largest car market, which is now facing massive overcapacity.
The reset involves a shift to producing electric vehicles, focusing on more upscale models and importing premium vehicles, these people said. Reductions in factory capacity and additional job cuts are under consideration, said the people, who asked not to be named because the plans are still in the works and have not been publicly disclosed. GM and its joint ventures in China employ more than 58,000 people, according to a GM website.
The carmaker’s shares were little changed at 9:32 a.m. in New York.
GM will continue to make less expensive vehicles and EVs locally in a joint venture with SAIC Motor Corp. and Wuling Motors, some of which will be exported from China.
The auto manufacturer said in a recent securities filing that China’s domestic automakers are prioritizing market share gains over profits, making it difficult to maintain sales volumes. As a result, GM said it’s working with local partners to overhaul its Chinese operations, resulting in “an increased likelihood of recording future charges, which could be material, if losses continue in the near term.”
A 30-year contract with state-owned SAIC is set to expire in 2027 and GM wants to return the business to sustained profitability before then.
The goal is to put that SAIC-GM partnership — which makes Buick, Cadillac and Chevrolet brand vehicles — in a stronger financial position so it can fund its own operations and vehicle development programs, the people said. The cuts required will be commensurate with lowered sales expectations in an effort to stem the flow of red ink, they said.
A second partnership in China, known as SAIC-GM-Wuling Automobile Co. Ltd., makes small and inexpensive vehicles. Its sales have held up better by selling more affordable electric vehicles like the Hongguang Mini EV. Wuling is controlled by state-backed Guangxi Automobile Group.
In the most recent quarter ended June 30, GM lost $104 million on its Chinese business, part of a first half loss totaling $210 million. The automaker had hoped to cut production there in the first quarter and return to profitability.
GM has been contemplating a shakeup in its China business for months and Chief Financial Officer Paul Jacobson alluded to a reorganization in an investor presentation Aug. 8.
“We’ve got to remain competitive and that means that we’ve got to take a look at the business with our partner to ensure that we can restore it to profitability and that we can restore it to self-sustaining cash flow going forward,” Jacobson said at that event in New York. “China can be a good asset for us and remains a good asset for us.”
GM is one of the longest-tenured foreign automotive brands to manufacture locally in China, becoming only the second foreign brand to gain permission to do so in 1997 after Volkswagen AG. Its sales peaked at 4 million in 2017 and fell by almost half to 2.1 million last year.
In the latest quarter, GM’s China sales plunged 29% to 373,000 vehicles, with all of its US brands in steep decline, including Buick, Cadillac and Chevrolet. Vehicles made by SAIC-GM-Wuling Automobile fell just 12% in the period. GM sees that partnership as having better prospects because it makes the type of compact EVs in China for which demand is still increasing.
More troubled is the separate partnership between GM and SAIC, which builds US-branded vehicles locally that target the saturated middle of the market. That venture will likely shift its focus to more premium vehicles targeting upscale buyers in line with a strategy GM Chief Executive Officer Mary Barra outlined earlier this year.
(Updates with shares, number of China employees from fourth paragraph.)
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