General Motors’ Chinese business is in trouble
A worker checks the quality of a car before leaving the assembly line at the production workshop of SAIC General Motors Wuling in Qingdao, east China’s Shandong province, 28 January 2023
CFO | Future Publishing | Getty Images
General Motors is losing ground in China, its top market for more than a decade and one of the two main sources of profit for the Detroit automaker.
The company’s market share in the country, including its joint ventures, plummeted from about 15% in 2015 to 9.8% last year – the first time since 2004 that it fell below 10%. Its operating profit also fell nearly 70%. % since peak in 2014
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The coronavirus pandemic that originated in China is partly to blame. However, the decline began years before the global health crisis and is becoming more difficult amid mounting economic and political tensions between the US and China.
There is also growing competition from state-backed domestic automakers, fueled by nationalism and generational change in consumer perceptions of the auto industry and electric vehicles.
Take, for example, Will Sundin, a 34-year-old science teacher who told CNBC he never thought about buying a Chinese brand car when he moved to China. countries in 2011. Most recently, Sunding purchased a Nio ET7 electric vehicle as a daily driver in Changsha, the capital of China’s Hunan province.
“I wanted something big and comfortable, but I also wanted something a little fast,” he said. “I like the way he looks.”
Sundin who moonlights youtube car reviewer, well knows the Chinese automobile industry. He bought his Nio instead of models from competing Chinese automakers. Xpeng, Lee Auto and IM Motors. He said the car’s ability to swap out the battery for a new one rather than recharging it “pushed it forward pretty quickly.”
Not on his consideration list? American brands such as GM’s Cadillac and Buick, which were initially the automaker’s growth leaders in China.
“Cadillac has a good image in China, but it’s expensive,” said Sundin, who previously owned a 2012 Ford Focus. “I think the problem they’re having is that they’ve got competition, new competition, a lot of new competition from different directions that they weren’t expecting.”
Will Sunding, who lives in Changsha, stands in front of his new Nio ET7 electric car.
Source: Will Sundin
This competition is increasingly becoming a problem for GM, which has acknowledged the existence of such problems in its Chinese business. However, the company hasn’t given much of a guarantee on how to reverse this trend, aside from the promise of new electric vehicles and new business. a division called The Durant Guild which will import high-margin expensive cars from the US to China.
While many American brands don’t perform well in China, GM’s decline is particularly notable. GM’s operations in the country are much larger than those of its competitor in other cities. Ford Motor, For example. It also has a much smaller global presence after divesting its operations in Europe and closing operations elsewhere to mainly focus on North America, China and, to a lesser extent, South America.
Over-reliance on just a few markets can be risky. But it led to record profits for GM as the company, under CEO Mary Barra, did away with underperforming operations. Electric vehicles could be a new global growth opportunity for GM, but experts say it will be an uphill battle compared to China’s recovery in the coming years.
“With the changes they’ve made, with the refocus on North America and China, moving out of Europe, basically it creates a risky scenario now that you have some problems, multiple problems happening in the Chinese market. ” said Jeff Schuster, executive vice president of LMC Automotive, a GlobalData company.
Downplaying results
GM has downplayed the role of its China operations in recent quarters, including CFO Paul Jacobson saying China is “not critical” to GM’s financial performance when he discussed earnings in October.
In December, Barra said China was an important part of GM’s business, but the company was also paying attention to other issues, including the now-defunct “zero Covid” government policy and recent protests.
“We still see opportunities there… obviously we are also monitoring the geopolitical situation. We cannot operate in a vacuum,” she said at a meeting of the Automobile Press Association. “But we still see this as an opportunity and will continue to assess the situation, but our plans are to take a leading position in the field of electric vehicles.”
A bright spot for GM in China was the joint venture’s Wuling Hongguang Mini, which is the best-selling electric vehicle on the market. Since going on sale in mid-2020, the economy car has sold over 1 million units.
Electric Vehicles SAIC-GM-Wuling Automobile Co. connected to charging stations at a roadside parking lot in Liuzhou, China on Monday, May 17, 2021.
Qilai Shen | Bloomberg | Getty Images
However, Jacobson said earlier this year that China’s handling of the coronavirus pandemic and rising Covid cases were responsible for a nearly 40 percent drop in equity income in 2022.
GM reports its earnings from China as equity earnings because the country mandates joint ventures with non-Chinese automakers, except for Tesla, which has been granted an exemption. GM has 10 joint ventures, two wholly foreign-owned enterprises and more than 58,000 employees in China. Its brands include Cadillac, Buick, Chevrolet, Wuling and Baojun.
“Now we are seeing a lot of Covid cases in China that have slowed consumer growth. So we expect it to be a bit of a slow buildup, but hopefully it will get back to the levels we’re used to over time. “, he told reporters on January 31 during a call about income.
Not only Covid
But it’s not just about the pandemic. Revenue from GM shares and joint ventures in China fell 67% from a peak of more than $2 billion in 2014 and 2015. This includes a decline of about 45% from then until 2019 – before the coronavirus wreaked havoc on China’s economy and car manufacturing. In 2022, GM’s China operations generated $677 million in equity income for GM.
“This is not Covid. It started long before Covid,” Michael Dunn, CEO Zozo Go, a consulting firm focused on China, electrification and autonomous vehicles. “This also coincides with the escalation of tensions between the United States and China. There is no doubt and it cannot be measured, but it is definitely a factor.”
Dunn, president of GM Indonesia from 2013 to 2015, said the decline of GM and other overseas automakers comes at the same time as the Chinese market is slowing down, Chinese automakers are becoming more competitive and moving to all-electric vehicles that are heavily subsidized by the state. agencies.
“Over the past five years, they have all taken it seriously as mid-range brands. Chinese consumers are increasingly buying Chinese brands,” he said. “It’s a seismic shift…thinking has changed.”
Employees work on an assembly line for a Buick Envision SUV at the workshop of GM Dong Yue Assembly Plant, officially known as SAIC-GM Dong Yue Motors Co., Ltd, on November 17, 2022 in Yantai, Shandong province, China.
Tang Ke | Visual Chinese group | Getty Images
Domestic start-ups and automakers have helped Beijing achieve its goal of increasing the penetration of new energy vehicles, a category that includes electric vehicles. More than a quarter of passenger cars sold in China last year were new energy vehicles, according to the China Passenger Car Association, which predict penetration will reach 36% this year.
Local companies rushed to capture some of this growth in the car market, which was generally declining. Startups like Nio helped promote the idea of electric vehicles as part of an aspirational lifestyle and status symbol in China. And improving the quality of domestically produced electric vehicles has helped fuel and tap into growing nationalist pride among Chinese consumers.
According to China Automobile Manufacturers Association. By comparison, US brand sales in the US have been around 45% during this time.
“Obviously the market was just somewhere else; a lot of that is determined by politics,” Schuster said.
Influence of Chinese nationalism
LMC Automotive says Chinese companies accounted for half of the top 10 automakers by sales in the country last year, up from three in 2015. BID Autoelectric vehicle maker, whose sales have skyrocketed from about 445,000 units since then to nearly 2 million last year, making it one of the top five automakers by sales in China.
“I think the main reason GM’s decline is Chinese nationalism,” Dunn said. “It takes the form of China saying that it wants to be the world leader in electric vehicles and doing everything in its power to nurture national champions like BYD.”
Besides GM, America’s other automakers are descendants of Ford and Chrysler. stellantis — things were no better. Both experienced significant sales declines; however, none of them reported any plans to withdraw from the market.
In February Ford named Sam Wua former Whirlpool chief executive who joined the automaker in October as president and chief executive officer of its China operations effective March 1.
According to the company’s annual filings, Ford’s market share in China has been around 2% since 2019, compared to 4.8% in 2015 and 2016.
Ford’s troubles in China are not just overseas. In February, the company said it would partner with Chinese supplier CATL to build a new $3.5 billion electric vehicle battery plant in Michigan. The deal was criticized by some Republicans, including Senator Marco Rubio of Florida, who asked the Biden administration to consider a Ford deal license technology from CATL.
Ford CEO Jim Farley on Feb. 13, 2023 at the automaker’s battery lab in suburban Detroit announces a new $3.5 billion electric vehicle battery plant in the state to produce lithium iron phosphate or LFP batteries.
Michael Wayland/CNBC
A joint venture between Stellantis and Guangzhou Automobile Group, which builds Jeep vehicles in China, filed for bankruptcy in late 2022 after a decision to dissolve the partnership and import its SUVs into the country.
Stellantis CEO Carlos Tavares said the company is pursuing an “asset lightening” approach in the country focused on boosting profits rather than necessarily sales, which are down 7% in 2022.
“It’s also important that you understand that our financial performance in China has improved significantly,” he told reporters during a phone call last month, saying the company is “cleaning up.”
While US automakers are regrouping, China’s local automakers continue to strengthen their position in the domestic market.
“People in China are proud,” owner Nio Sundin said.
“Just like American Made in the US and all the patriotism behind it in China, [it’s] the same: “Finally, we can make a phone or a car that will be as good or even better than foreign automakers.”
— CNBC Evelyn Cheng contributed to this report.
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