How GM aims to halt slide in the world’s top auto market

Automakers from Detroit to Germany are scrambling to make changes and cut costs to survive in China as government-backed domestic manufacturers there continue to flourish in the world’s largest auto market, claiming market share long held by foreign producers.

Executives at General Motors Co. figured they could turn the China business around and report a profit in the second quarter, but instead, the automaker reported a $104 million loss in equity income after reporting a $106 million loss in the market during the first quarter. CEO Mary Barra told analysts in the second-quarter earnings call it was working closely with its joint venture partner there to restructure the business “to make it profitable and sustainable.”

She called the current Chinese market, awash in electric-vehicle startups, “unsustainable” with many automakers “prioritizing production over profitability.” She noted the automaker is taking steps to address inventory levels and launch products there that will “be better received,” a goal shared — if not achieved — by rivals from Dearborn, Wolfsburg and Japan.

All of this raises an important question: Should a GM led by Barra, the engineer of the Detroit automaker’s 2017 exit from Europe after nearly a century, bolt China, too, amid reports of losses and lower sales? The boss has made it clear that GM intends to stay, a position experts and analysts support — for now.

“You don’t leave the largest market in the world,” said Warren Browne, an auto supplier consultant and former GM executive who worked at the carmaker for 40 years. “You adjust.”

And innovate. GM plans to use its new Durant Guild, a high-end imported car sales platform, to deliver products made abroad, including the large, Texas-built Chevrolet Tahoe and GMC Yukon SUVs. It also will lean on the strength of Buick, a long-time favorite in brand-conscious China, as well as its Chinese brands.

“There’s a path forward in this market that we do believe, over the course of the midterm, is going to resume to growth,” Barra told investors. And in a May interview with The Detroit News, Barra said: “We think China is an important market. It has kind of stalled, but we still think there’s growth opportunity. Clearly, the industry has shifted with the rise of EVs, and frankly , I don’t think it’s sustainable when you have over 100 EV startups, domestic Chinese companies, with only a couple of them profitable.

“There’s got to be a sorting there. You can’t have a race to the bottom. I think GM can play especially with the strength of our Cadillac brand and our Buick brand. I think in some cases we were later than we should have been to get the right portfolio of EVs there.”

Still, there is risk in staying in the country just as there is in leaving. Last week, German automaker Volkswagen AG said it’s considering closing plants in Germany as it battles Chinese competition in Europe and in China, the automaker’s largest market.

More: Why Volkswagen confronts the unthinkable in Germany — plant closures

“Competition has intensified significantly worldwide,” VW CEO Oliver Blume told investors on a second-quarter earnings call in early August. “New competitors are entering the market with a high level of innovation and cost advantages.”

What GM is doing to stay in China long-term

GM has been selling vehicles in China since 1997 when it created a joint venture with Chinese company SAIC Motor, and for years experienced growth in the country. GM hit a peak of 4 million sales in 2017, but last year sold 2.1 million vehicles there and is projected to sell 1.8 million vehicles this year.

The dramatic drop in sales came as Chinese consumers turned toward electrified vehicles and as more electric-vehicle-producing domestic automakers in China, including powerhouse BYD Co. Ltd., came on the scene. The result: more market share for Chinese players and less for GM and other foreign automakers. GM’s market share in 2023 was 8.4%, down from 9.8% in 2022 and 11.2% in 2021, according to company filings with the Securities and Exchange Commission.

Sales of new-energy vehicles (NEVs) in China surpassed sales of internal combustion engine vehicles for the first time in July 2024, according to China Passenger Car Association data highlighted by S&P Global Mobility in a late August newsletter. NEVs include battery electric vehicles, plug-in hybrids and range-extended vehicles. S&P is forecasting the NEV share of the Chinese market will reach 46% in 2024, up from 36% in 2023.

There’s more. Chinese-brand market share in the retail NEV market increased from 83% in the first half of 2023 to 87% in the first half of 2024, S&P noted, while global competitors have a combined sales share of less than 15% in the first six months of this year.

“It just seems as if they were blindsided, as if it came out of nowhere,” said Michael Dunne, founder and CEO of Dunne Insights LLC and a former GM executive with experience in Asia. He added that the Chinese automakers “themselves are stunned by the speed and magnitude of the change.”

To battle the low-cost domestic EV producers, GM is launching several plug-in hybrids and battery electric vehicles, including the Chevrolet Equinox PHEV, Buick GL8 ES PHEV and the Cadillac Optiq EV. Its Wuling brand will field an all-electric Xing Guang EV that complements a plug-in version. The Baojun brand is refocusing on NEVs. Last year, it launched the Yep EV, its first all-electric SUV in China and is now offering the larger Yep Plus.

In the second quarter, when GM sold about 373,000 vehicles in China — a 29% decline from the previous year — GM’s NEV sales accounted for a record 38% of total deliveries.

The Durant Guild will offer premium imports, starting with the Tahoe. GM opened its first Durant Guild storefront in Shanghai this summer and started selling the Tahoe in August. The Durant Guild has showcased the Yukon, Hummer EV SUV and pickup, the Corvette and Celestiq at local auto shows.

Despite the effort, it’s unclear if and when Chinese consumers will shift back to buying foreign brands the way they used to. “That’s the tricky part,” said David Whiston, an analyst at financial services company Morningstar Inc. “I’m inclined to think, ‘no, this is not temporary. This is probably permanent.'”

Whiston doesn’t think it’s a bad idea for GM to try to find a “niche” by selling higher-end models to the wealthy in China, but he’s still expecting GM to post losses there through 2028.

“Rather than assuming at some point they can figure it out, I’m basically assuming that they won’t be able to recover,” Whiston said. “However, I do think there could be a place for them long term (with) something like Durant or with Buick and, possibly, Cadillac.”

Making it long-term will require cost-cutting measures. Bloomberg, citing sources, reported last month GM has been cutting jobs in China. The staff cuts affected market-related departments, including research and development, according to the report.

Dan Ives, an analyst for Wedbush Securities Inc., sees China as “an uphill market climb for GM with spots of success but a lot of challenges. Tesla and others have faced major competing issues in China and that remains the conundrum for GM.”

Not just GM, not just China

GM isn’t alone in pivoting its China business.

Ford Motor Co. is relying on local partners Changan Ford Automobile Co. Ltd. and Jiangling Motors Co. Ltd., to maintain its presence there. Its strategy, which it has applied in other markets like Europe and South America, includes selling “passion products” like Mustangs, Broncos and F-150 Raptors, The Detroit News previously reported.

Ford is leveraging its partners’ platforms and technology for vehicles to avoid high costs and get vehicles to market quickly. The Dearborn automaker signed an agreement last year with Jiangling to increase exports of its products, including low-cost commercial vehicles.

Volkswagen has an “In China, for China” campaign to align products with what the Chinese consumer wants. By 2030, the automaker plans to have more than 30 all-electric models for the market.

“With our ‘In China, for China’ strategy, we have a strong plan and are accelerating the implementation of our business, with more customer focus, more speed and more local development,” Ralf Brandstätter, member of the board of management of Volkswagen AG for China, said in a statement.

The threat of low-cost Chinese EVs built on the backs of government subsidies is also a concern in Europe, and a growing fear in the United States. This summer, the European Commission responded to concerns by placing tariffs on Chinese-imported EVs that include a 17% duty on BYD vehicles, 19.3% on Geely and 36.3% on SAIC. EVs made by Tesla Inc. in China have 9% duty.

The commission has previously warned that Chinese vehicles could represent 15% of European sales in 2025. The tariffs started to affect sales in July when market share dropped from 10.2% in July 2023 to 9.9% in July 2024, Bloomberg reported.

Still, for GM and others in China, “it’s a shock to the system to think about retreating to a position of a niche player,” Dunne added. “You go from selling 4 million at the peak, maybe less than 2 million this year, and then none would be in the tens of thousands. That’s a dramatic fall off the cliff.”

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