Commencement of withdrawal from the globe's most substantial automobile marketplace is underway
Now, the scenario has reversed. General Motors (GM) is achieving record profits domestically, yet it's facing significant losses in China, raising concerns over its prolonged existence in the region. Simultaneously, Chinese car manufacturers have flooded their home market with desirable electric vehicles, a segment that American automakers previously overlooked.
The outcome has been devastating for foreign automakers operating in China.
GM's Chinese sales have dropped by 19% during the initial nine months of the year, resulting in a $347 million loss from its Chinese joint ventures. Recently, the company announced a reduction in its net income by over $5 billion due to issues in China.
Approximately half of this loss is attributed to the cost of restructuring and potentially downsizing its operations. The remaining half reflects the decreasing value of its Chinese operations, no longer justified by current economic conditions.
As Jeff Schuster, GlobalData's global vice president of automotive research, put it, "You can look back 15, 20 years to when GM's China operations were its lifeline. It certainly isn't now. It's a money pit." This hardship is not exclusive to GM; international brands worldwide are grappling with similar struggles in China.
Although GM has yet to disclose the details of its restructuring plan in China, industry experts suggest that many Western automakers, including GM, are considering their continued presence in the world's largest automobile market.
In October, GM CEO Mary Barra informed investors that Western automakers face a challenging environment in China but expressed confidence in turning things around and remaining in the country. However, others are more skeptical.
Michael Dunne, an auto industry consultant involved in Western automakers' efforts in China since the 1990s, shared this sentiment. "There were golden years for GM in China, but those are over, and they'll never have a comeback story."
Furthermore, numerous Western automakers, who rushed to enter and sell vehicles in China at the end of the 1990s, are now facing difficulties. Chinese consumers, once favoring Western brands, now view Chinese brands as offering better value. This shift largely stems from Chinese government policies and incentives aimed at promoting a transition from traditional gasoline-powered cars to electric vehicles and plug-in hybrids.
"If you're a mass-market brand seller, you're highly vulnerable in China," said Dunne. He predicts that most Western automakers will be forced to exit the Chinese market within the next five years, if not sooner.
Chinese automakers currently sell around 70% of the cars in their country, according to data from the China Passenger Car Association. In contrast, they only held 38% of the market as recently as five years ago, with foreign brands capturing the remaining share.
Upon entering China, Western automakers were required to form joint ventures with Chinese manufacturers, ensuring they held at least a 50% stake. However, Dunne doubts that GM will continue its joint venture with SAIC, set to expire in 2027, or maintain partnerships with other Chinese automakers. He expects most Western automakers to cease their operations soon.
Stellantis, the European automaker responsible for producing vehicles under the Jeep, Ram, Dodge, and Chrysler brands in North America, saw its Jeep China joint venture file for bankruptcy in 2022 due to prolonged losses. Ford claims to still be profitable in China, but its Chinese joint ventures primarily derive income from exports to other Asian markets and South America.
GM withdrew from a significant market previously. In 2017, the automaker entirely left the European market after withdrawing its Chevrolet brand just three years prior.
China's shift to EVs
The primary concern is China's recent shift from gasoline-powered cars to electric vehicles or plug-in hybrids, now dominating its market. The government has introduced policies and incentives promoting a shift towards EVs, attracting buyers to better cars and values provided by Chinese brands.
"Ten years ago, President Xi Jinping and the Chinese automakers decided: ‘We have been chasing global automakers in internal combustion engine vehicles, and we’re not catching up. We’re going all-in on electric,'" said Dunne.
Western automakers persisted in gasoline-powered vehicles, with their JV partners following suit. Now, those companies, with the exception of Tesla, struggle to keep pace with cheaper EVs and hybrids from Chinese automakers, such as BYD.
Western automakers' decision to prioritize gasoline-powered vehicles was a blunder, asserted Bill Russo, head of Shanghai-based investment advisory firm Automobility and head of Chrysler's Northeast Asia operations from 2004 to 2008.
"The foreign brands didn’t prioritize it. They didn’t see it coming," he said.
Russo said that the shift in the market largely occurred during 2020 and early 2021. The COVID-19 pandemic hindered frequent visits of Western automakers' top executives to China, making it easier for them to miss the shifts in the market. While Western automakers have announced plans to sell more electric cars, they anticipate selling gasoline-powered vehicles for at least the next 10 years.
However, they continue to lose money on EV production, as Chinese competition grabs a larger market share.
"They thought they had more time than they did," said Russo.
Russo believes that abandoning China entirely, even in its currently non-competitive state, would be another grave mistake for Western automakers.
Despite potential Trump administration easing of rules and incentives for U.S. electric vehicle (EV) purchasers, American car manufacturers aside from Tesla would still need to adhere to strict emission norms and gasoline-powered vehicle limitations in other regions. Furthermore, they'll need to adapt to competing with Chinese car manufacturers and their budget-friendly EVs in the near future, according to his statement.
"The loss of China is disastrous for any automotive entity," Russo remarked. "Nevertheless, never undervalue a corporation's capacity to prioritize short-term earnings over long-term sustainability."
CNN’s Hassan Tayir contributed to this piece.
In light of General Motors (GM)'s struggle in China, some business strategists suggest that the company might consider downsizing its operations in the world's largest automobile market. With Chinese automakers dominating the local market, selling around 70% of cars, Western automakers, including GM, are finding it challenging to maintain their presence.
Due to China's shift towards electric vehicles (EVs), Western automakers, such as GM, have been slower in transitioning to this new market segment. As a result, Chinese manufacturers like BYD outpace them with cheaper EVs and hybrids, leading to substantial financial losses for Western companies.
