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Far from leaving China anytime soon, GM has committed to going big there
SORRY, DONALD TRUMP: General Motors Co isn't leaving China anytime soon. It can't, and it won't.
After the carmaker announced plant closings across North America as part of a wide-ranging restructuring plan, the president lashed out on Twitter, threatening to strip GM of any US government subsidies. He also pointed out that nothing was "being closed in Mexico & China" and that GM's bet on China wouldn't pay off. There may be some truth in that last point.
Why, on the face of it, would GM walk away from the world's largest car market? Despite falling volumes, the company still expects to book US$2 billion of equity income in China this year. While its market share has plummeted, margins still remain close to 9-10 per cent there, higher than 6-7 per cent for the company as a whole.
GM has committed to going big in China: It launched the Cadillac XT4 luxury SUV earlier this year and had planned to roll out as many as 10 models by Dec 31. The company sells more cars wholesale in that market than at home - 835,934 of them, including joint ventures, in the third quarter, against 700,000 in the US.
China isn't just large and lucrative, though, and CEO Mary Barra will have to steer carefully. As we've written before, American carmakers can no longer take success for granted. Overall, Chinese car sales have fallen for four straight months, with only luxury holding up. That trend shows up in GM's results: Its sales there were down almost 15 per cent in the third quarter, and volumes fell for all brands except Cadillac - which accounts for only 5.5 per cent of its retail business in China.
While Beijing's push into a future dominated by electric cars has been aggressive and well-subsidised, production issues abound. In August, GM postponed the launch of its Buick Velite 6, a local version of the Chevrolet Volt, because Chinese-made batteries did not meet its standards. (The company killed the Volt, the Cruze and the Impala as part of the cost cuts announced earlier this week.) Ms Barra, who said that she had visited China twice in October, also said on an earnings call that the company is watching the market there very closely. It would not be surprising to see GM double down on luxury models, if it can afford to do so. In Shanghai last year, Ms Barra said that "China is playing a key role in the company's strategy" as she talked up electrification, autonomous vehicles and ride-sharing.
The push to leverage Beijing's generosity - rather than Mr Trump's threats - may now be far more appealing to GM as it takes multi-billion-dollar write-downs amid soaring costs. Not only is China its biggest market, GM has done a better job navigating the nation's potholes than its peers Ford Motor Co and Fiat Chrysler Automobiles NV.
Investors cheered GM's sweeping cost cuts and prudent position. Now they should pay careful attention to the company's spending for clues that it may prove Mr Trump wrong on China. BLOOMBERG
- This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners