It wasn’t long ago that China was by far the largest and most profitable market for General Motors (GM). While the company was hemorrhaging money in North America and Europe, and hurtling towards bankruptcy and a bailout, sales and profits from China allowed it to keep the lights on.
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Now the opposite is true. GM is making record profits at home, but it’s losing enough money in China that there are questions about how much longer it can stay. At the same time, Chinese automakers have flooded their home market with exactly the sort of desirable electric vehicles that Chinese buyers want and American automakers once dismissed.
Employees work on a car assembly line at the SAIC General Motors Co. in Wuhan, China, in April 2022. ·Ren Yong/SOPA Images/LightRocket/Getty Images
The result has been catastrophic for foreign automakers in China.
GM’s Chinese sales are down 19% over the first nine months of the year, and it has lost $347 million on its Chinese joint ventures over the same period. Earlier this month, it announced its net income would be reduced by more than $5 billion due to the problems in China.
About half of that reflects the cost to restructure — and likely shrink — its operations there. The other half is a reflection that the value of its Chinese operations was no longer justified by today’s economic reality.
“You can look back 15, 20 years to when GM’s China operations was its life preserver. It certainly isn’t now. It’s a money pit,” said Jeff Schuster, global vice president of automotive research at research firm GlobalData. “Every international brand is suffering in China.”
While GM has yet to announce the details of its restructuring in China, Schuster and other experts said most Western automakers, including GM, are looking at how long they can stay in the world’s largest car market.
GM CEO Mary Barra told investors in October that Western automakers face “a very challenging environment” in China but that GM is convinced it can turn things around and remain in the country. Others aren’t so sure.
“There were golden years for GM in China, but those are over, and they’ll never have a comeback story,” said Michael Dunne, an auto industry consultant who has been involved in Western automakers’ efforts in China since the 1990s, including GM’s entry into the market.
And it’s not just GM that is facing problems in China. Most Western automakers who rushed to build and sell vehicles in the country at the end of the 1990s and beginning of the 2000s are struggling now.
Chinese consumers who once preferred Western brands now feel Chinese brands are a better value. That new preference is driven in large part by Chinese government policy and incentives to encourage a shift from traditional gasoline-powered cars to electric vehicles and plug-in hybrids.
“If you’re a seller of mass maker brands, you’re highly vulnerable in China,” Dunne said. “Most (Western automakers) will be forced to exit the market in next five years if not sooner.”
Visitors look at the Cadillac Escalade IQ electric SUV at the Beijing International Automotive Exhibition in Beijing, China, on April 25. - Tingshu Wang/Reuters
Chinese automakers sell about 70% of the cars in the country, according to data from the China Passenger Car Association. As recently as five years ago, they had only 38% of the Chinese market, with foreign brands capturing the rest.
When GM entered the country, China essentially required Western automakers to partner with Chinese manufacturers who would have at least a 50% stake in the joint venture. But Dunne said he sees little chance that GM will extend its joint venture with SAIC, set to expire in 2027, or other smaller Chinese automakers. And he sees most of the other Western automakers also pulling the plug on their efforts.
Stellantis (STLA) — the European automaker that makes cars under the Jeep, Ram, Dodge and Chrysler brands in North America — saw its joint venture that made Jeeps in China file for bankruptcy in 2022 after years of losses. Ford says it is still profitable in China, but most of the money from its Chinese joint ventures comes from exports to other Asian markets as well as South America.
GM has pulled out of a large market before. The automaker left the European market entirely in 2017 after pulling out its Chevrolet brand just three years before.
China’s shift to EVs
The biggest problem is China’s shift from traditional gasoline-powered cars in recent years to electric vehicles or plug-in hybrids, which now make up a majority of its market. The country had introduced policies and incentives that pushed buyers towards EVs, where they found better cars and better values in the 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 whole hog into electric,’” said Dunne.
Western automakers tried to stay the course with gasoline-powered cars, and for the most part, so did their JV partners. Now those companies — other than Tesla, which has a factory in Shanghai — are trailing far behind in an effort to keep up with lower priced EVs and hybrids from Chinese automakers, such as BYD.
It was a massive miscalculation by Western automakers, said Bill Russo, head of Shanghai-based investment advisory firm Automobility and head of Chrysler’s Northeast Asia operations from 2004 to 2008.
BYD electric cars for export at a port in Yantai in eastern China's Shandong province on April 18. - STR/AFP/Getty Images
“The foreign brands didn’t prioritize it. They didn’t see it coming,” he said.
He said much of the shift in the market took place during 2020 and early 2021. The Covid-19 pandemic made it difficult for the top executives of Western automakers to travel to China, making it easier for them to miss the earthquakes in the market. And while Western automakers have all announced plans to sell more electric cars, they’ll be selling gasoline-powered vehicles for at least the next 10 years.
And they’re still losing money on EV production, even as Chinese competition gobbles up market share.
“They thought they had time that they didn’t have,” Russo said.
Russo said it would be another huge mistake for Western automakers to abandon China just because they’re not competitive now.
Even if the incoming Trump administration pulls back on rules and incentives for US EV buyers, American automakers other than Tesla will still have to comply with tough emission standards and restrictions on gasoline-powered cars elsewhere. And they will have to learn how to compete with Chinese automakers and their affordable EVs in the future, he said.
“Losing China would be catastrophic for any automotive enterprise,” Russo said. “But never underestimate a corporation’s ability to prioritize short-term profitability over long-term viability.”
CNN’s Hassan Tayir contributed to this report.
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