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General Motors’ China business faces problems

Workers check the quality of vehicles before leaving the assembly line at SAIC General Motors Wuling’s production workshop in Qingdao, eastern China’s Shandong province, January 28, 2023.

CFOTO | Future Publishing | Getty Images

general motors It is losing ground in China, the top sales market for more than a decade and one of the Detroit automaker’s two main profit engines.

Including joint ventures, the company’s market share in the country plummeted from about 15% in 2015 to 9.8% last year, falling below 10% for the first time since 2004. % since peak in 2014.

The coronavirus pandemic that originated in China is partially to blame. However, this decline began years before the global health crisis and has become increasingly complicated amid growing economic and political tensions between the United States and China.

Nationalism and generational shifts in consumer perceptions of the auto industry and electric vehicles are also increasing competition from government-backed domestic automakers.

For example, Will Sunding, a 34-year-old science teacher, told CNBC that he never dreamed of buying a Chinese-brand car when he moved to China. country in 2011. Recently, Sundin 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 faster,” he said. “I like the look of it.”

Sundin in the moonlight as YouTube car reviewer, is familiar with China’s auto industry. He purchased the Nio by purchasing a model from his rival Chinese automaker. Xpeng, lee auto and IM Motors. He said the vehicle’s ability to swap in new batteries, rather than recharging them, “preempted it pretty quickly.”

Not on his consideration list? American brands such as GM’s Cadillac and Buick were the first to lead the automaker’s growth 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 facing is that there’s competition coming from different directions that they didn’t expect, new competition, a lot of new competition.”

Changsha resident Will Sunding stands in front of his new Nio ET7 electric car.

Source: Will Sandin

That competition is becoming increasingly problematic for GM, which has acknowledged such problems with its China business. Doesn’t offer many warranties A unit called the Durant Guild Import expensive cars from the US to China with high profit margins.

Many US brands are not doing well in China, but GM’s decline is particularly noticeable.GM’s domestic business is much larger than its crosstown rivals ford motor, for example. It also has a much smaller global footprint after shrinking operations in Europe and closing operations in other regions to focus primarily on North America, China and, to a lesser extent, South America. I’m here.

Over-reliance on only one market is dangerous.but it is GM’s record earningsthe company under CEO Mary Barra has done away with underperforming businesses. House says it will be an uphill battle compared to recovering in China in the next few years.

“With the changes they’ve introduced, they’ve refocused on North America and China, and withdrawing from Europe basically creates a dangerous scenario right now with some problems, multiple problems in the Chinese market. said Jeff Schuster, executive vice president of LMC Automotive, a GlobalData company.

downplay the consequences

GM has downplayed the role of its business in China in recent quarters, with CFO Paul Jacobson saying China is “not crucial” to GM’s results. Earnings for October.

Barra said in December that while China is an important part of GM’s business, the company is paying attention to other issues as well. That included the government’s now-defunct “Zero Covid” policy and recent protests.

“We still think there is an opportunity there. Of course, we are also watching the geopolitical situation. We cannot operate in isolation,” she said at the Automotive Press Association conference. “But we continue to see opportunities there and as we continue to assess the situation, our plan is to take the lead in EVs.”

GM’s bright spot in China is the joint venture-built Wuling Hongguang Mini, the best-selling EV on the market. Since its launch in mid-2020, this economy car has sold over 1 million units of his.

An electric vehicle from SAIC-GM-Wuling Automobile Co. is plugged into a charging station at a street parking lot in Liuzhou, China, Monday, May 17, 2021.

Shen Qilai | Bloomberg | Bloomberg | Getty Images

Still, Jacobson said earlier this year that China’s response to the coronavirus pandemic and surging Covid cases was responsible for a nearly 40% drop in equity earnings for the business in 2022.

GM reports earnings from China as equity income because the country requires non-Chinese automakers (other than Tesla) to form joint ventures. exemptedGM has ten joint ventures, two wholly-owned foreign companies and more than 58,000 employees in China. Its brands include Cadillac, Buick, Chevrolet, Wuling and Baojun.

“We are seeing a lot of Covid cases in China right now that have slowed down the movement of consumers, so we expect it to build up a bit slowly, but we expect to return to the levels we are used to over time. I hope so,’ he told reporters Earnings report for January 31st.

Not just Covid

But it’s not just related to the pandemic. Equity income from GM’s China operations and joint ventures has fallen 67% from its peak of over $2 billion in 2014 and 2015. This includes his nearly 45% decline to 2019 before the coronavirus hit China’s economy and auto production. In 2022, GM’s China operations gave GM his $677 million in equity income.

“This is not Covid. This started well before Covid,” said CEO Michael Dunn. zozogois a consulting firm focused on China, electrification and autonomous vehicles. “It also coincides with rising tensions between the United States and China. There is no doubt, it is impossible to measure, but it is definitely a factor.”

Dunne, who served as president of GM’s Indonesian operations from 2013 to 2015, said the decline of GM and other non-domestic automakers has resulted in slowing growth in the Chinese market, increasing competitiveness of Chinese automakers, and large sums from the government. said it will come with the transition to all-electric vehicles, which are subsidized by agency.

“They’ve all been really putting their chins on as mid-market brands for the past five years. Chinese consumers are buying more and more Chinese brands,” he said. It’s a change… a change of mindset.”

An employee works on the assembly line of a Buick Envision SUV at the GM Dong Yue assembly plant (officially SAIC-GM Dong Yue Motors Co., Ltd) workshop in Yantai, Shandong Province, China, November 17, 2022. I’m here.

Tang Ke | Visual China Group | Getty Images

Domestic start-ups and automakers have helped Beijing realize its goal of promoting new energy vehicles (a category that includes electric vehicles). According to the China Passenger Vehicle Association, more than a quarter of his passenger cars sold in China last year were new energy vehicles, and this year’s penetration rate is expected to reach 36%.

Local businesses have rushed to grab some of that growth in an overall sluggish auto market. Nio It helped promote the idea of ​​electric vehicles as part of China’s coveted lifestyle and status symbol. I was able to take advantage of it.

Since 2015, the market share of Chinese brands has increased by 21%, reaching nearly half of all passenger cars sold in China last year. China Automobile Manufacturers AssociationBy the way, during this period, sales of American brands in the United States remained flat at about 45%.

“Obviously the markets are elsewhere. A lot of it is policy-driven,” Mr. Schuster said.

Influence of Chinese Nationalism

Chinese companies accounted for half of the country’s top 10 automakers last year, up from just three in 2015, according to a report by LMC Automotive. BYD Autois an electric car maker that has surged to nearly 2 million units last year, up from around 445,000 since then, making it one of the top five automakers in China by sales.

“I think the number one reason for GM’s decline is China’s leaning towards nationalism,” Dunn said. “It takes the form of China declaring that it wants to be the global dominance of electric vehicles and is doing everything in its power to develop a national champion like BYD.”

Aside from GM, America’s Other Legacy Automakers — Descendants of Ford and Chrysler Stellantis — not so well. Both have seen a significant drop in sales. However, neither has communicated any plans to give up the market.

February, Ford Sam WooThe former Whirlpool executive, who joined the automaker in October, took over as president and chief executive of the company’s China operations on March 1.

Ford’s market share in China has fallen from 4.8% in 2015 and 2016 to about 2% since 2019, according to the company’s annual report.

Ford’s problems in China are not limited to said in february The company will work with Chinese supplier CATL on a new $3.5 billion battery plant for electric vehicles in Michigan.The deal has been criticized by some Republicans, including Senator Marco Rubio of Florida, who called on the Biden administration review ford deals License the technology from CATL.

On February 13, 2023, at the automaker’s battery lab outside Detroit, Ford CEO Jim Farley unveiled a new $3.5 billion statewide EV battery to produce lithium iron phosphate (LFP) batteries. Factory announced.

Michael Weiland/CNBC

A joint venture between Stellantis and Guangzhou Automobile Group, which produces Jeep vehicles in China filing for bankruptcy In late 2022, we received a decision to dissolve the partnership and import the SUV into the country.

Stellantis CEO Carlos Tavares said the company is pursuing an “asset-light” approach that will focus on increasing profits rather than a 7% decline in sales in 2022.

“It’s also important to recognize that our financial situation in China has improved significantly,” he told reporters on a conference call last month, adding that the company was “cleaning up the place.” rice field.

While America-focused automakers are regrouping, China’s local automakers continue to gain ground in their home market.

“The Chinese people are proud,” said Sundin, Nio’s owner.

“Just as ‘American Made’ is in America and all the patriotism behind it is in China, [it’s] Same thing: ‘Eventually, we will be able to make phones and cars that are as good or better than foreign automakers. ’”

— CNBC’s Evelyn Chen Contributed to this report. General Motors’ China business faces problems

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