By Mike Colias in Detroit and Yoko Kubota in Beijing
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 8, 2020).
General Motors Co. posted its biggest-ever sales drop in China
last year and warned of a tough 2020, underscoring the challenges
that U.S. car makers are facing as a protracted decline grips the
world's largest auto market.
For years, global car makers had banked on China as a reliable
profit generator and source of growth, helping to offset cyclical
slowdowns in more mature auto markets such as the U.S. and
Europe.
But in the past two years, China sales have slipped into reverse
as the country's economic boom has tapered off and the government
has eased up on subsidies that had previously made vehicles more
affordable.
The market has since become a trouble spot for many auto
manufacturers, both foreign and domestic. The problems have been
made worse by China's trade tensions with the U.S., as well as
rising levels of unused factory space that can weigh on
earnings.
GM, the country's second-largest car maker by sales, after
Volkswagen AG, is especially exposed in China, having retreated
from Europe and other car markets in recent years as part of an
effort to shore up profitability.
The Detroit car maker said Tuesday that it sold about 3.09
million vehicles last year in China, roughly a 15% drop from 2018.
It was GM's second straight year of falling sales in its biggest
overseas market.
In 2018, sales slumped about 10% in China -- the company's
first-ever decline there.
"We expect the market downturn to continue in 2020, and
anticipate ongoing headwinds in our China business," said Matt
Tsien, an executive vice president who leads GM's business in
China.
The China Association of Automobile Manufacturers estimates the
market will fall 2% in 2020.
GM is now focused on cost-cutting and making other improvements,
Mr. Tsien said.
Rival Ford Motor Co. has fared worse in China, suffering from a
multiyear sales slump that has caused it to lose money there over
the past two years after a stretch of profits.
Both American auto makers have pointed to poor sales of older
models, and have vowed to revitalize their lineups in China with
new offerings.
Still, many car companies are betting on China's size and growth
potential, particularly in electric vehicles, which Beijing
supports through regulations and incentives.
Tesla Inc., another U.S. auto maker, said Tuesday that it plans
to build its Model Y compact sport-utility vehicle at the company's
Shanghai plant, in a move to expand the electric-car maker's
production capabilities and boost sales in China.
For Tesla, production in China is a significant growth
opportunity, after the company's reliance on imported cars to feed
the market.
Tesla's shares have surged at the start of 2020, leading the
company to become the most valuable U.S. car maker to date. On
Monday, it closed with a market value of $81.39 billion, surpassing
Ford's peak of $80.81 billion set in 1999.
China looms large in Tesla's future strategy, especially with
sales growth easing in the U.S., where the company recently lost a
U.S. tax credit that effectively lowered the price of its
vehicles.
GM and Ford also plan to sell several electric models in China,
though those vehicles will account for a sliver of their overall
businesses. Meanwhile, they are trying to spark growth for their
traditional brands in a crowded market. Sales of GM's Chevrolet
brand, for example, fell 20% in China last year.
Through the first 11 months of 2019, the combined market share
for U.S. companies shrank by 1.5 percentage points, while those of
German and Japanese car makers grew, according to data from the
state-backed China Association of Automobile Manufacturers.
Full-year data is expected Jan. 13.
GM has now suffered six straight quarters of sales declines
there in year-over-year terms.
The Detroit auto maker was on pace to earn more than $1 billion
in China in 2019, though that would be down significantly from
recent years. Through the first three quarters of last year, China
accounted for 11% of the company's global operating profit, down
from about 16% over the past several years.
Meanwhile, Ford's third-quarter sales in China fell 30%. After a
disappointing earnings report this autumn, Ford cut its full-year
profit outlook for 2019, citing higher warranty costs, bigger
discounts and weaker-than-expected performance in China.
The Dearborn, Mich., auto maker is set to release its 2019
full-year results for China in coming days.
GM's troubles in China come as the auto maker confronts slowing
sales at home. In 2019, it sold nearly 2.9 million vehicles in the
U.S., a 2.3% decline compared with 2018.
In late October, GM executives blamed the year's sales downturn
in China on overall market volatility and weak demand for the
company's older models that are being phased out. In China, GM has
a joint venture with the country's largest car maker, SAIC Motor
Corp., with which it manufactures Buick, Chevrolet and Cadillac
passenger vehicles.
Chief Executive Mary Barra told analysts that the company is
introducing new vehicles in China that she hopes will lift sales,
including a small Chevrolet sport-utility vehicle called the
Trailblazer and a large SUV, the Cadillac XT6.
She said the auto maker hadn't detected any negative sentiment
from consumers related to the U.S.-China trade tensions.
Through the first three quarters of 2019, GM earned about $893
million from China, nearly half of the $1.7 billion it earned in
the same period a year earlier.
Luxury brands have generally performed well despite the market
downturn, and in 2019, sales of GM's upscale Cadillac brand rose to
a record 213,717 vehicles in China, a 3.9% increase from 2018.
Many industry experts said China's auto market is likely to
decline further this year. The China Association of Automobile
Manufacturers estimates the market will fall 2% in 2020.
--Yin Yijun in Shanghai contributed to this article.
Write to Mike Colias at Mike.Colias@wsj.com and Yoko Kubota at
yoko.kubota@wsj.com
(END) Dow Jones Newswires
January 08, 2020 02:47 ET (07:47 GMT)
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