Author | Yang Yuke, Yang Lu

Editor | Li Guozheng

Produced by | Bangning Studio (gbngzs)

Foreign brands and Chinese brands, like river dragons and local bullies, compete fiercely in the Chinese automotive market.

After the tide of joint venture dividends recedes, river dragons increasingly struggle and feel unprecedented pressure. The latest storm center is General Motors.

On December 4, foreign media reported that General Motors would incur two non-cash charges and write-downs totaling over $5 billion due to its Chinese operations and would restructure its business in China, including closing factories.

On December 5, in response to rumors about General Motors' plans to restructure its Chinese business, General Motors issued an official statement: "We are taking measures to reduce inventory, produce on demand, protect the price system, and reduce fixed costs.""

'The Chinese market is a 'race to the bottom,'" General Motors CEO Mary Barra said more than a month ago.

In the third quarter of this year, General Motors achieved quarterly growth in sales and market share in China, with new energy vehicle sales exceeding those of fuel vehicles for the first time. In November, sales of the General Motors system in China exceeded 200,000 units, marking the fifth consecutive month of month-on-month sales growth. Since the beginning of this year, dealer inventory has decreased by more than 50%.

Despite the decent November data, General Motors' market position in China is under threat. In 2017, General Motors sold up to 4 million vehicles in China annually, but this number dropped to 2.1 million in 2023. This decline fills the long-term presence of General Motors in China with uncertainty. It is rumored that SAIC-GM may lay off staff and close factories and is now considering cutting specific models, turning once-household brands like Buick into minor players.

Regarding plant closures and production line adjustments, General Motors China stated that it is promoting business restructuring, including optimizing product mix and focusing on the rapidly growing new energy sector. The production facilities under General Motors China will also align with demand to rebuild competitive advantages. "These actions are expected to enhance profitability in the fourth quarter of this year and beyond.""

But it remains uncertain how long this 'future' will last, or even if it will come at all.

Recently, SAIC renewed its contract with Volkswagen, extending the cooperation period of SAIC Volkswagen to 2040, from the original expiration date of 2030. In fact, the agreement between SAIC and General Motors is more urgent, expiring in June 2027, with less than two and a half years remaining. However, there is currently no news of a renewal, indicating that neither party is very enthusiastic, and the future of SAIC-GM is uncertain.

Currently, General Motors is struggling to compete with Chinese local models in terms of price. If losses continue, General Motors may eventually withdraw from the joint venture. From the perspective of SAIC Motor, if it cannot obtain cutting-edge technology or brand enhancement from its cooperation with General Motors, General Motors' withdrawal would be in line with the situation.

Will General Motors reduce its shareholding in the joint venture? Will it withdraw from the Chinese market? General Motors China did not give a direct response to Bangning Studio, stating only that its current business focus is on boosting sales and ensuring long-term and sustainable profitability in the Chinese market. However, General Motors has publicly stated that it has no plans to leave China. Barra recently told analysts, "I believe our brands still have a place.""

It is worth noting that Barra will be 63 years old by 2027 when the contract expires, and she may retire by then.

Outcompeted by Chinese Brands

Since the second half of this year, negative news about General Motors in China has been frequent: layoffs, plant closures, plunging sales, emergency leadership changes... At the same time, there has been an endless stream of topics about General Motors' business restructuring in China.

In the first three quarters of this year, General Motors' business in China lost a total of $347 million, which the company attributed to increased competition. The relevant financial report stated: "Especially from competitive electric vehicle brands in China, this has led to a decline in General Motors' market share in China.""

Barra described the Chinese auto market as "headache-inducing.""

According to data from research firm AutoForecast Solutions, in 2018, Chinese manufacturers had the capacity to produce about 1 million new energy vehicles, while foreign companies could only produce about 150,000. General Motors and other traditional competitors have been slow to develop electric vehicles and cannot seize the initiative like domestic Chinese manufacturers.

This year, in the Chinese market, the sales share of new energy vehicle models has exceeded 50% for several consecutive months. Domestic manufacturers have the capacity to produce nearly 10 million new energy vehicles, while foreign competitors have a capacity of only 1.9 million.

China is now using low costs to produce cheap models globally, posing a threat to General Motors in the South American market, Hyundai and Toyota in the Southeast Asian market, and local European manufacturers.

The price of China's battery industry is also unattainable for Western companies. Kurt Kelty, Vice President of Battery Packs and Cells at General Motors, said in an interview in October that this was partly because some raw materials were sold at "artificially low prices.""

'We know the prices of all materials in China and the United States,' Kelty said. 'Their selling prices and supposed costs are unreasonable. There is severe overcapacity in China. Using some materials there is feasible because the prices are artificially suppressed.'""

General Motors has slowed down production lines in China to reduce bloated inventory, but Barra admits: 'It's clear that the measures we have taken, while important, are not enough.' The company continued to incur losses in the third quarter, with sales declining for the seventh consecutive year.

An informed source said that General Motors hopes its cooperation with SAIC Motor will help it maintain a strong domestic business. However, the latter also has its own problems. Like General Motors, SAIC Motor has been slow to respond to market changes and the shift to electric vehicles. As of October this year, its sales had declined by 21%.

Sun Can, a Chevrolet dealer in eastern Beijing, said that China now has more new car brands, lower prices, and novel interior designs, making them more popular than General Motors brands.

'Chevrolet was very popular in 2017 and 2018, but now the market competition is fierce, and these cars are difficult to sell,' she said.

Yan Yu bought a Buick Verano in 2021 because it was cheap and is now considering buying an additional Tesla or BYD. 'Buick seems to be more popular among older people,' he said.

David Whiston, an analyst at Morningstar Research Services, said: 'The current situation in China is not a temporary problem.' He believes that as automobile technology and attractiveness improve, Chinese consumers will increasingly prefer domestic brands.

The troubles faced by General Motors in China, the world's largest auto market, reflect a broader trend - as increasingly ambitious Chinese auto companies such as BYD and Geely launch more new models and significantly reduce prices, almost all foreign auto manufacturers, including those from Europe, Japan, the United States, and South Korea, are struggling.

$5 Billion in Charges and Write-downs

In late October this year, Barra presided over a meeting to try to revitalize SAIC-GM. Her idea at the time was restructuring, as General Motors could not afford to lose hundreds of millions of dollars annually.

On December 4, General Motors stated that its non-cash expenses and write-downs in China exceeded $5 billion: $2.7 billion for restructuring-related costs and $2.6 billion to $2.9 billion for writing down the equity value of its joint ventures in China. According to the plan, General Motors will hold a series of shareholder and joint venture board meetings in the fourth quarter, focusing on discussing how to take restructuring actions to make the business sustainable and profitable.

Subsequently, General Motors Chief Financial Officer Paul Jacobson spoke at the UBS Global Industrials and Transportation Conference, stating that while he would not discuss the specific details of the restructuring, General Motors did not intend to inject more funds from the United States to China. "General Motors' goal is to resume profitability in China by 2025, but on a smaller scale.""

Jacobson said, 'The Chinese business must rely on itself and cannot invest a lot of money. We will restructure some agreements and ensure that we can manage cash flow as we adjust the business scale to meet smaller demand.'""

The one-time charge indicates that General Motors believes there is no prospect of a significant recovery in its Chinese operations or profits in the short term.

In the first three quarters of this year, General Motors incurred consecutive losses in China, with a loss of $137 million in the third quarter compared to a profit of $192 million in the same period last year. In 2017, the company earned $2 billion in China. Whiston said that the days when General Motors earned $2 billion annually in the Chinese market "are over and may be gone forever.""

A spokesperson for General Motors said in a statement: 'As we have always said, we focus on capital efficiency and cost constraints and have been working with SAIC-GM to turn around its business in China to achieve sustainable development and profitability in the market. We are about to finalize the restructuring plan with our partners and expect our performance in China to improve year-on-year by 2025.'""

The above statement said that SAIC-GM made progress in adjusting production volume to match demand in the second half of the year.

During the third-quarter earnings call, Barra emphasized General Motors' adaptation strategy. She said that the environment in China is challenging because some domestic brands 'do not seem to prioritize profitability; they prioritize production volume.' She said that General Motors could make money in China in another way, such as focusing on a new pickup truck and imported luxury cars.

Whiston said it makes sense for General Motors to try to restart its business in the Chinese market. 'The question is: Is this enough? Do you have products to turn the situation around?' he said. 'Only time will tell the answer.'"

In addition, General Motors has established a business unit in China, Dueland, a platform specifically set up to boost import sales. By early 2025, Dueland plans to double the number of its flagship stores to 14.

Since August, Dueland has opened seven flagship stores in major Chinese cities such as Shanghai, Beijing, Shenzhen, Chengdu, Shenyang, Xi'an, and Hangzhou. On November 15, Dueland stated that it plans to open another seven in other first- and second-tier cities early next year but did not disclose which cities specifically.

Leadership Change at SAIC-GM

On August 9, the new management team of SAIC-GM took office. Lu Xiao, the former Executive Vice President of the Pan Asia Technical Automotive Center, became the General Manager of SAIC-GM, and Xue Haitao, the former Deputy General Manager of SAIC-GM Wuling, became the Deputy General Manager of SAIC-GM. In just over three months, they have made a series of adjustments from top to bottom to save the declining sales situation.

From 2019 to 2023, SAIC-GM's annual sales dropped from over 1.6 million to 1.0001 million, a decrease of about 37%.

The decline accelerated this year. According to SAIC Motor's production and sales bulletin for November this year, SAIC-GM's terminal sales were 56,000 units, a year-on-year decrease of 35.36%. From January to November, cumulative terminal sales were only 370,000 units, a year-on-year decline of 58.61%.

The new leadership made swift changes. At the end of September, Lu Xiao stated that SAIC-GM would fight four battles: two related to products, namely the Buick GL8 and the all-new Cadillac XT5; the other two related to marketing, channels, and internal system adjustments and optimizations.

At the product level, from this year to next, SAIC-GM will achieve comprehensive new energy transformation. There will be layouts for plug-in hybrids, extended-range electric vehicles, and pure electric vehicles, as well as updates to ultra-fast charging and 800V technology. Among them, pure electric and plug-in hybrid models will be equipped on sedans, while SUVs will adopt an extended-range mode.

The above two products, the Buick GL8 and the all-new Cadillac XT5, have fallen into a price war, implementing a 'one-price' strategy.

The 'one-price' strategy was initially introduced on the Buick Envision Plus model. On September 24, SAIC-GM Buick officially announced a price reduction of 60,000 yuan for the corresponding models of the Envision Plus, with a limited-time price. In fact, this model has been sold at the reduced price ever since.

Initially, some users reported that they could not buy 'one-price' new cars at local dealerships. SAIC-GM issued two consecutive statements stating that complaints could be made through the Buick customer service hotline.

This marketing strategy resulted in increased sales for SAIC-GM but also hurt the brand. Especially after the limited-time purchase policy for the GL8 Land Business Class, with a starting price of 197,900 yuan, users can buy it for less than 200,000 yuan, which inevitably discounts the brand value. Cadillac models such as the XT5 and XT6, once painstakingly touted as 'luxury cars,' have also joined the 'one-price' queue, causing significant damage to the brand image.

Products are engaged in fierce price wars, and two other battles are also progressing rapidly.

SAIC-GM said that all developments are carried out according to an 18-month cycle. Xue Haitao revealed that it is planned to connect the production planning chain from end consumers to dealers and then to the corporate headquarters in the fourth quarter, achieving unification from procurement, production, manufacturing, and dealer demand, so that every car produced meets end-user demand.

In fact, SAIC-GM launched plug-in hybrid and extended-range models very early on, but later switched to pure electric models. However, they did not keep pace with the rhythm of China's new energy vehicle market. Lu Xiao proposed that SAIC-GM should launch a "counterattack". Whether product launches can keep up with the market rhythm is a key factor.

From production to sales terminals, SAIC-GM's new strategies launched in August have all been implemented.

In addition to the struggling joint venture SAIC-GM, General Motors also has a special organization in China—the Pan Asia Technical Automotive Center. It is China's first professional automotive design and development center established by a joint venture automotive brand and is an important part of the embedded GM global R&D system. Many interior and exterior designs for North American models are also developed and designed here.

Currently, SAIC-GM has significant technological development authority within the GM system in terms of plug-in hybrid technology and digital technology. For example, the entire development process for digital products is 100% independently completed by the local Chinese team. Among them, Buick and Chevrolet have taken the lead in achieving 100% localized R&D for digital products; in October this year, the R&D of digital functions for Cadillac series models achieved full localization.

However, whether these efforts can drive SAIC-GM's rebound from the bottom remains to be seen through time.

For established automotive giants such as GM, Ford, Volkswagen, and Toyota, it is becoming increasingly clear that the feast of the Chinese market has ended. They are losing to rising Chinese brands.

'We have seen the market share and profits of established automakers plummet simultaneously, and they are powerless to stop this trend,' said Mike Dunne, a former GM executive and China market consultant.

(Parts of this article are based on reports from Automotive News, Reuters, and Bloomberg, and some images are from the internet)