GM in China is a dead man walking - David Fickling
Getting a stay of execution doesn’t mean you’re no longer on death row. That’s the situation that General Motors Co.’s Chinese joint venture finds itself in. The company announced Wednesday it was going to write as much as $5.6 billion off the value of the business. What’s left is going to struggle to limp past the renewal of GM’s 30-year contract with its main partner SAIC Motor Corp. in 2027. Consider what the move implies. It is sufficient to wipe out as much as 88% of the value of GM’s joint ventures in China. Some $2.7 billion of the total will come from costs incurred as it closes down plants and businesses. The remainder is a write-off of the equity value that’s left behind, implying that storied brands such as Buick, Chevrolet and Cadillac are now next to worthless in China. (Its other main marque, GMC, is barely sold there.) That’s an astonishing turnaround for anyone familiar with the armies of cheap-and-cheerful Buicks that swarm Chinese roads. GM’s Chief Executive Officer Mary Barra has always insisted that she’s in China for the long term, but it’s hard to see this week’s announcement as anything other than a prelude to closure. GM has lost ground because its local models look old and outdated, especially in a market where half of sales now come with a plug. Only two of China’s top-100-selling auto models so far this year were GM brands — the gas-powered Buick GL8 and Verano Pro, at (respectively) 95 and 98 in the ranking. Plug-in hybrids, a type of auto pioneered by GM more than 15 years ago that have been hugely popular in China lately, are almost absent from the lineup. Until the middle of this year, just a single plug-in hybrid model was available across all three GM brands; now there are two. It’s not impossible to turn a situation like that around, but it will require heavy investment. That’s clearly not going to happen. Head office in Detroit has never wanted to pump funds into GM-SAIC … all charges would be non-cash — in other words, that all the cost to shareholders will come from tidying up the accounting, rather than throwing good money after bad. Staying in the game in a fiercely competitive Chinese auto market right now isn’t cheap. Add up capital expenditure and research and development spending, and most of GM-SAIC’s competitors are paying out billions of dollars a year staying up-to-date (at market-leader BYD Co., the figure is more than $23 billion). It’s impossible to see how GM’s China ventures — which only posted $1.1 billion in net income on $31 billion of net sales in 2023, before volumes fell 59% this year — can come close to keeping up. This is the point in the life of a business where executives start calling for a thousand lifeboats to come to the rescue …
Source: David Fickling in Bloomberg