(Bloomberg) -- General Motors Co. Chief Executive Officer Mary Barra has said that China’s crowded market is a “race to the bottom.” For GM, it’s a contest that’s left the automaker saddled with losses and rethinking its options.
The American carmaker revealed Wednesday that it would take charges and asset writedowns of more than $5 billion for its investment in a joint venture with Shanghai’s SAIC Motor Corp. and to restructure operations in China, including closing factories.
In a country that not long ago counted Buick and Chevrolet as two of the most popular foreign brands, GM’s profits and market share have tumbled, so much that, like other multinationals, the company’s long-term presence in China is anything but certain.
Barra led a meeting in late October to try to reenergize the SAIC venture, a once-crucial partnership that dates back to the 1990s. The idea was to restructure because GM could no longer afford to bleed hundreds of millions of dollars a year. With today’s massive revaluation, Barra is signaling that the automaker is dialing back its ambitions.
Once a linchpin of GM’s global strategy, the company’s China business is in free fall. Sales figures released Thursday showed GM and its joint ventures in China delivered just over 200,000 vehicles in November, including more than 100,000 NEVs. By comparison, market-leader BYD Co. delivered a record 504,000 plug-in hybrids and battery EVs last month.
The automaker hasn’t given many details of its plans but the partners are looking at difficult options that will shrink its presence. The joint venture will likely cull workers and shutter plants, according to people familiar with the matter. GM is looking at axing specific models, turning brands like Buick — once the preferred car of the Chinese emperor in the 1920s — from a household name into a minor player.
Those decisions will have huge implications for GM’s willingness to stay in China beyond 2027, when its SAIC deal expires. The company said it has no plans to leave and that the planned cutbacks will do the trick, but it will have to assess how long it can tough it out amid price wars.
GM is struggling to compete on price with domestic models subsidized by the Chinese government and could eventually leave the venture if losses persist, people familiar with the matter said. And if SAIC is no longer getting cutting-edge technology or a brand bump from working with a well-known American manufacturer, it may have a reason to walk away, the people said.
In a statement Thursday to local media outlet Cailian, GM China said that the Chinese business is a high-quality asset for now and into the future, and it is cooperating and communicating more closely than ever with SAIC to achieve profitability. “To achieve our long-term development goals, we are taking measures to reduce inventory, produce on demand, protect our pricing system and reduce fixed costs,” the company said.
Barra, who turns 63 this month, could be retired by the time GM needs to make that call, but even the possibility highlights the state of play for the Detroit-based company, which was the first American automaker to establish a successful business in what is now the world’s largest car market. GM’s market share was almost 15% a decade ago; it fell to 6.8% as of September. And it’s already lost $347 million this year.
What’s becoming clear for GM — and other legacy giants like Ford Motor Co., Volkswagen AG and Toyota Motor Corp. — is that the China party is over. Foreign companies are losing ground to ascendant Chinese players, which have benefited from more than $230 billion in government subsidies over the past 15 years.
“We’ve seen a collapse of market share and profits all at once,” said Mike Dunne, a former GM executive who consults on the Chinese market. “And the established carmakers are powerless to stop it.”
Domestic Dominance
Foreign firms have been taken by surprise by Chinese electric models that boast advanced infotainment systems and often cost less. Not even Elon Musk can keep up with the always-innovating likes of BYD, which outsells Tesla Inc. in China.
Part of the problem has to do with how quickly China has turned to new-energy vehicles, which refers to both battery-electric and plug-in hybrid cars. In recent years, the government has offered considerable incentives and tax breaks, and loosened restrictions on auto lending.
It was a cunning move by the Chinese government aimed at fostering domestic companies. In 2018, Chinese producers had capacity to make about 1 million NEVs, and foreign companies could only produce about 150,000, according to researcher AutoForecast Solutions LLC. GM and traditional rivals dragged their feet developing EVs, and were unable to take advantage like domestic producers could.
More electrified models have hit the market to take advantage of incentives and because the government put restrictions on sales of gasoline-powered vehicles. This year, the Chinese market is approaching half electrified models. Domestic producers have the capacity to make almost 10 million NEVs, while foreign competitors have capacity for just 1.9 million.
China’s Plan
GM’s now-retired Chairman Jack Smith got Chinese government approval to sell cars there in 1997. The Communist Party particularly wanted Buick because it had been the emperor’s car of choice. GM revamped its Regal sedan for party members and sold Korean-designed cars with smaller engines for the mass market.
At the time, the partnership with SAIC seemed like a smart one. It’s considered a crown jewel in the Shanghai region, giving GM access to one of the nation’s biggest markets and garnering favor with politicians.
For China, meanwhile, these types of partnerships offered both domestic benefits and a means to get technology and quickly learn how to make cars, said Dunne, the former GM executive.
“China’s objective from the beginning was to do joint ventures with the big automakers, and then get the technology and do it themselves,” he said.
China has capacity to make almost 50 million cars a year in a market where consumers will buy 28 million, according to market researcher Global Data. The spare annual capacity alone is more than Americans buy in a year.
China is now using low costs to churn out cheap models for the world — posing risks to Hyundai Motor Co. and Toyota in southeast Asia, to GM in South America, and to local manufacturers in Europe.
China’s battery industry also has excess capacity and is selling at prices western companies can’t match. Part of that is because some raw materials are selling at an “artificially low price,” Kurt Kelty, GM’s vice president of battery pack and cells, said in an October interview.
“We know the price of all the materials in China and here,” he said. “It doesn’t make sense the price they’re selling for and the cost it should be. They have tremendous overcapacity there. Some materials make sense to use there because they have an artificially low price.”
‘Not Enough’
GM entered the second quarter of this year expecting to return to profitability in China after slowing assembly lines to thin bloated inventory. It didn’t fix the problem.
“It’s clear the steps we have taken, while significant, have not been enough,” Barra told investors in July after reporting another quarterly loss in the market. Sales are on course for a seventh consecutive annual decline.
In the near term, GM will restructure its China business to sell more imported SUVs and some pricey EVs, and rely on a second joint venture for cheap models and exports, people familiar said. The heavy cuts will fall on GM’s presence in the middle market.
Executives are aiming to stay in the good graces of the Chinese government and preserve some presence there. One bright spot is a partnership with Wuling Motors Holdings Ltd. — one in which GM is a minority owner. Wuling makes small, inexpensive electric cars and is increasingly becoming a significant exporter. Its sales rose 11% in China in the third quarter.
The American automaker also hopes its ties to SAIC will help it maintain a strong domestic business, one of the people said. However, SAIC has problems of its own. The company has reacted slowly to changes in the market and the move to EVs, just like GM, and its sales were down 21% this year through October.
China has more new car brands, and their lower prices and fresh interior design make them more popular than GM brands, said Sun Can, a Chevrolet dealer in eastern Beijing.
“Chevrolet was pretty popular in 2017 and 2018,” she said. “Now the market competition is intense and it’s difficult to sell these cars.”
Yan Yu bought a Buick Verano in 2021 because it was inexpensive, and is now shopping for another family car. This time around, she’s looking at a Tesla or a BYD.
“Buick seems to be more popular among the older population,” Yan said.
Barra says GM will start to see better results in China soon and insists the automaker can still have a role in the market, but she stops short of pledging a return to the glory days.
“We see a meaningful way we can participate” in the Chinese market, Barra told analysts recently. It will be “structurally different,” she added, “but we think there’s a place for our brands.”
--With assistance from Chunying Zhang, Luz Ding, Katrina Nicholas and Danny Lee.
(Adds GM’s November sales figures for China in fifth paragraph.)
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