General Motors Co. is facing challenges in the Chinese market, leading to layoffs and a planned structural overhaul of its operations in the country. The Detroit automaker is recognizing that its sales are unlikely to return to peak levels seen in 2017, prompting a reassessment of its strategy in China.
The company is cutting staff in Chinese market-related departments, including research and development, as it prepares to meet with local partner SAIC to discuss possible capacity cuts and strategic redirection for American nameplates sold in China. This shift in strategy comes as many foreign brands are struggling to compete with local competitors in the world’s largest car market, which is facing overcapacity issues.
GM, which earned billions of dollars in China as recently as 2018, is now focusing on producing electric vehicles, upscale models, and importing premium vehicles. Reductions in factory capacity and additional job cuts are being considered as part of the strategic overhaul. The company’s shares were little changed in early trading on Tuesday as news of the restructuring emerged.
Despite the challenges, GM will continue to produce less expensive vehicles and electric vehicles locally in a joint venture with SAIC Motor Corp. and Wuling Motors, with some models being exported from China. The company acknowledges that China’s domestic automakers are prioritizing market share gains over profits, making it difficult to maintain sales volumes.
GM’s 30-year contract with SAIC is set to expire in 2027, and the company aims to return its Chinese operations to sustained profitability before then. The goal is to strengthen the SAIC-GM partnership, which produces Buick, Cadillac, and Chevrolet vehicles, so it can fund its own operations and vehicle development programs. The necessary cuts will be made to align with lowered sales expectations and reduce losses.
Another partnership in China, SAIC-GM-Wuling Automobile Co. Ltd., which produces small and inexpensive vehicles, has seen better sales performance by offering affordable electric vehicles. Despite this, GM reported a loss of $104 million on its Chinese business in the most recent quarter, part of a first-half loss totaling $210 million.
GM’s Chief Financial Officer, Paul Jacobson, hinted at a reorganization of the company’s China business in an investor presentation, emphasizing the need to restore profitability and self-sustaining cash flow. The company, one of the longest-tenured foreign automotive brands in China, has seen a significant decline in sales in recent years, with its China sales plunging 29% in the latest quarter.
As GM navigates the challenges in the Chinese market, it is clear that a strategic shift is necessary to adapt to changing consumer preferences and market conditions. The company’s focus on electric vehicles, upscale models, and premium vehicles reflects a broader trend in the industry towards sustainable and innovative solutions. By reevaluating its operations in China and working closely with local partners, GM aims to position itself for long-term success in one of the world’s most important automotive markets.