GM loses its golden goose in China

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Common Motors is shedding its golden goose in China. As soon as a linchpin of its world progress technique, the nation is now the US automaker’s largest headache. 

The corporate behind Buick and Chevrolet stated this week it might take a cost of greater than $5bn because it restructures its China enterprise, which is made up of joint ventures. It has its work minimize out.

Like different overseas automobile corporations, it’s dealing with a number of challenges within the nation. Progress within the Chinese language auto market has slowed as shoppers minimize spending. On the similar time, native gamers — helped by beneficiant subsidies from Beijing — are profitable market share. A tit-for-tat commerce battle ensuing from US president-elect Donald Trump’s proposed tariffs on Chinese language imports would add to the ache. All which means that, whereas GM wish to draw a line beneath its woes in China, it’s removed from sure that it might probably achieve this. 

Final yr, for the primary time since 2009, GM bought fewer automobiles in China than it did within the US. The decline has continued in 2024. The Chinese language enterprise has racked up $347mn in losses within the first 9 months of the yr. Its automobile unit gross sales within the nation fell almost 20 per cent in that interval, whereas its market share dropped to six.8 per cent, from 8.6 per cent a yr earlier and almost 14 per cent in 2018.

Line chart of Number of vehicles, 000s showing GM sold more vehicles in the US

But GM shares have been unfazed. The inventory is up 48 per cent this yr and was buying and selling at a virtually three-year excessive simply final month. That’s largely due to the energy of its North American enterprise, which accounts for many of its earnings. The $10.1bn in web revenue it reported final yr is about 50 per cent greater than what it made in 2019 regardless of the regular decline in its China enterprise.

Buyers ignore GM’s China struggles at their peril. Issues will solely get harder. Whereas China is the world’s largest auto market, it’s also essentially the most aggressive. Enhancements in high quality, mixed with low costs, have allowed homegrown Chinese language corporations together with NIO, Geely and BYD to construct a lead in electrical automobiles.

GM believes its joint ventures may be restructured with out additional capital injections and that it may be worthwhile in China subsequent yr. Even when that’s the case, it’s exhausting to see GM — or different overseas carmakers which might be retrenching to adapt to declining gross sales — attaining the identical degree of profitability as prior to now. With China’s slowing market already setting off a value battle between native manufacturers, the occasion for overseas carmakers appears to be like over for now.

pan.yuk@ft.com

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