Back on the Test Bench: General Motors and the Chinese Market

The great boom in the Chinese automotive market once proved to be a real goldmine for the Detroit automakers. General Motors, in particular, initially benefited immensely from the rise of the Chinese middle class and the booming demand for vehicles. For some time, China even became the largest sales market for the company. However, alarm bells are ringing now, and GM is forced to make profound changes, which entail significant financial consequences. As early as 2017, General Motors reached a peak in China with the sale of four million vehicles. Since then, sales figures have almost halved, which has a dramatic impact on profits. GM recorded three consecutive quarters of losses in the region. Analyst John Murphy from the Bank of America believes that withdrawing from China is inevitable for the "Detroit Three." This is primarily due to the extensive subsidization of domestic, and particularly electric, car manufacturers by the Chinese government, which has achieved a technological advantage in batteries. The market responded promptly, and in July, more than half of the vehicles sold in China were battery electric or plug-in hybrids. Without protection through tariffs, the Detroit manufacturers are in constant competition with the competitively priced offerings of the local competition. However, instead of leaving the market completely, GM plans a significant restructuring of its struggling China business. This will burden the company’s profits by over $5 billion. Planned measures include non-cash losses of $2.7 billion for restructuring and an additional $2.6 to $2.9 billion related to the devaluation of its stake in the joint venture with the Chinese SAIC Motor Corp. As part of the restructuring, GM is expected to discontinue models and close plants. The focus will be on electric vehicles, hybrids, and premium imports to become profitable again by 2025. The path to this goal will be challenging and ambitious, but there remains hope that the company can assert itself in the future without significant additional investments.