GM Posts Its Biggest China Sales Decline

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Thread: GM Posts Its Biggest China Sales Decline

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    GM Posts Its Biggest China Sales Decline

    GM Posts Its Biggest China Sales Decline

    6:56 pm ET January 7, 2020; Dow Jones

    By Mike Colias in Detroit and Yoko Kubota in Beijing

    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.

    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.
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    Re: GM Posts Its Biggest China Sales Decline

    All the more reason for GM to bolster their US business model.
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    Re: GM Posts Its Biggest China Sales Decline

    Quote Originally Posted by tripowergto Jan2003 View Post
    All the more reason for GM to bolster their US business model.
    The risk there is that the U.S. new vehicle market is expected to decline over the next few years, perhaps even more than in China and the E.U.

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    Re: GM Posts Its Biggest China Sales Decline

    Quote Originally Posted by gkr778 View Post
    The risk there is that the U.S. new vehicle market is expected to decline over the next few years, perhaps even more than in China and the E.U.
    All the hope for profit, which has been slim to none in China was talked-down because of the growth.

    It's like Amazon, no we are making a lot of money, but we are growing - that is OK, until the growth stops; Amazon is still growing, GM-China, not-so-much.......
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    Re: GM Posts Its Biggest China Sales Decline

    Quote Originally Posted by Ed753 View Post
    All the hope for profit, which has been slim to none in China was talked-down because of the growth.

    It's like Amazon, no we are making a lot of money, but we are growing - that is OK, until the growth stops; Amazon is still growing, GM-China, not-so-much.......
    Banking on the benevolence of the Chicommies or that they'll allow Western businesses to tote 747s full of cash out of there, someone should get into rehab or deep therapy, because they're trusting on what will not be and what was never going to be. They can ask Jefferson about that.
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    Re: GM Posts Its Biggest China Sales Decline

    Normal business cycle, growth phase with big spending is over. Now it is a mature market, time to focus on maintaining sales and increasing profitability. I see it as a good thing that GM dropped Europe as otherwise it would be a big drag on earnings with little or no potential to ever deliver strong profits. Without Europe, GM management can fully focus on improving profitability in China without other distractions (Europe).

    As China hasn't been a material profit generator to this point I am more concerned about the American economy as it is where a majority of GM's profits come from.

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    Re: GM Posts Its Biggest China Sales Decline

    Quote Originally Posted by BlackGTP View Post
    Normal business cycle, growth phase with big spending is over. Now it is a mature market, time to focus on maintaining sales and increasing profitability. I see it as a good thing that GM dropped Europe as otherwise it would be a big drag on earnings with little or no potential to ever deliver strong profits. Without Europe, GM management can fully focus on improving profitability in China without other distractions (Europe).

    As China hasn't been a material profit generator to this point I am more concerned about the American economy as it is where a majority of GM's profits come from.
    "Normal business cycle, growth phase with big spending is over. Now it is a mature market, time to focus on maintaining sales and increasing profitability"
    - Are you talking about US or China here?



    "As China hasn't been a material profit generator to this point I am more concerned about the American economy as it is where a majority of GM's profits come from."
    - What do you think China profit will look like with YOY declines of 10 and 15 percent? That would be like total US market going from 17.0 to 15.3 to 13.0 million.
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    Re: GM Posts Its Biggest China Sales Decline

    Quote Originally Posted by Ed753 View Post
    "Normal business cycle, growth phase with big spending is over. Now it is a mature market, time to focus on maintaining sales and increasing profitability"
    - Are you talking about US or China here?



    "As China hasn't been a material profit generator to this point I am more concerned about the American economy as it is where a majority of GM's profits come from."
    - What do you think China profit will look like with YOY declines of 10 and 15 percent? That would be like total US market going from 17.0 to 15.3 to 13.0 million.
    Talking about China, the USA has been a mature market for a long time.

    Not sure what you are getting at, who would think anything but profits will be down. GM needs to focus on profitability so that when the economy picks up they can make some material profits. Now is the time to cut the fat out.

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    Re: GM Posts Its Biggest China Sales Decline

    Quote Originally Posted by BlackGTP View Post
    Talking about China, the USA has been a mature market for a long time.

    Not sure what you are getting at, who would think anything but profits will be down. GM needs to focus on profitability so that when the economy picks up they can make some material profits. Now is the time to cut the fat out.
    You spelled profitable wrong.................

    My point is China is not all that it's been hyped-up to be; when you decline 15% off of a 10% decline, you need to grow 31% just to get back to where you were 3 years prior.
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    Re: GM Posts Its Biggest China Sales Decline

    If the Chinese Government is forced by Trump to dump its forced partnerships, GM should take advantage and terminate its JV's to operate independently in China, that might bolster returns.

    But I get the feeling GM is not going to do that. 'Their Chinese partners' speak is going to be so corporately spoken..

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    Re: GM Posts Its Biggest China Sales Decline

    Quote Originally Posted by mbukukanyau View Post
    If the Chinese Government is forced by Trump to dump its forced partnerships, GM should take advantage and terminate its JV's to operate independently in China, that might bolster returns.

    But I get the feeling GM is not going to do that. 'Their Chinese partners' speak is going to be so corporately spoken..
    Thought I would like GM to get rid of their Chinese partner, I do wonder if they are better off having one. For one thing having a Chinese partner makes it a little difficult for Mother China to punish an American company without harming a Chinese company at the same time.

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    Re: GM Posts Its Biggest China Sales Decline

    Quote Originally Posted by BlackGTP View Post
    Thought I would like GM to get rid of their Chinese partner, I do wonder if they are better off having one. For one thing having a Chinese partner makes it a little difficult for Mother China to punish an American company without harming a Chinese company at the same time.
    China as an economy is too dependent on exports and American dollar to be a challenge, plus they have a lot of internal problems especially an upside down population pyramid as well as disjointed national identity.

    At the end of the day China is still very much a peasantry economy. Unless they find a way to ease communist grip on it, its never going to be a real threat to the United States economic dominance.

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    Re: GM Posts Its Biggest China Sales Decline

    Quote Originally Posted by mbukukanyau View Post
    China as an economy is too dependent on exports and American dollar to be a challenge, plus they have a lot of internal problems especially an upside down population pyramid as well as disjointed national identity.

    At the end of the day China is still very much a peasantry economy. Unless they find a way to ease communist grip on it, its never going to be a real threat to the United States economic dominance.
    True, but they can still put the hurt on any Western company if they want to....

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    Re: GM Posts Its Biggest China Sales Decline

    Quote Originally Posted by mbukukanyau View Post
    If the Chinese Government is forced by Trump to dump its forced partnerships, GM should take advantage and terminate its JV's to operate independently in China, that might bolster returns.

    But I get the feeling GM is not going to do that. 'Their Chinese partners' speak is going to be so corporately spoken..
    ...and yet, Tesla's new plant doesn't require a joint partner.
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    Re: GM Posts Its Biggest China Sales Decline

    Quote Originally Posted by tripowergto Jan2003 View Post
    ...and yet, Tesla's new plant doesn't require a joint partner.
    Does China even have a need for joint partnerships anymore considering their new laws effectively abolish corporate secrets? Even in the absence of those draconian laws, some American corporations seem all too eager to sell ...er, I mean to 'share' IP with their commie competitors (no doubt while being ingratiated with personalized monetary coaxing to lube the chute).
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