General Motors (GM) has announced a significant restructuring plan for its struggling China business, marking a significant departure from its once-thriving market presence. The automaker’s sales in China peaked in 2017 at 4 million vehicles but have since dropped by almost half, resulting in three consecutive quarters of losses.
The decline is attributed to China’s government subsidies and incentives for domestic electric vehicle (EV) manufacturers, which has given them a significant advantage in EV battery technology. As a result, Chinese automakers now account for over 51% of the country’s new vehicle sales, making it an increasingly challenging market for Detroit automakers like GM.
In a surprise move, GM is planning to significantly scale back its China operations, with non-cash charges of $2.7 billion and another $2.6 billion to $2.9 billion expected to be incurred from the decline in value of its stake in SAIC Motor Corp., a Chinese joint venture.
The restructuring plan includes axing multiple vehicle models, plant closures, and focusing on EVs, hybrids, and high-end imports, which will undoubtedly be an uphill battle for GM. However, the automaker hopes to return its China business to profitability by 2025 with a significantly smaller operation.
While exiting the market entirely may have seemed like a viable option, this restructuring move is seen as a necessary step to curb losses, shrink operations, and give GM time to develop low-cost EVs that can compete in the Chinese market. The days of China being a lucrative market for GM are now behind it, and investors will be watching closely to see how its competitiveness in the global EV market evolves going forward.
Source: https://www.fool.com/investing/2024/12/15/general-motors-hits-costly-5-billion-speed-bump-ov