GM General Motors Company

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 another tough year ahead, underscoring the challenges that U.S. car makers are facing as the world's largest auto market suffers its first protracted decline in nearly three decades.

GM said Tuesday that it sold about 3.09 million vehicles last year in China, its biggest overseas market, roughly a 15% drop from 2018. It was the second straight year of falling sales in China. In 2018, sales slumped about 10% -- the company's first-ever decline there.

The Detroit company doesn't expect things to improve quickly. "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 the auto maker's business in China. GM is focused on cost-cutting and improving its product lineup, he said.

China's overall auto market, once a reliable source of growth for global auto makers, started contracting in July 2018 and has since become a trouble spot for many companies.

While many foreign and domestic auto makers have struggled as China's economy slows and auto subsidies expire, U.S. companies, including GM and rival Ford Motor Co., have fared particularly poorly.

Both American auto makers have pointed to poor sales of older models, and have vowed to revitalize their lineups in China with new offerings. Ford has lost money in China over the past two years after a stretch of profits. GM was on pace to earn more than $1 billion in China in 2019, though that would be down significantly from recent years.

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 its Shanghai plant, in a move to expand the electric-car maker's production capabilities and boost sales in China.

For Tesla, production in China represents a significant growth opportunity, following the company's reliance on imported cars to feed the market. 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, the second-largest foreign auto maker in China by sales in 2018, after Volkswagen AG, has now suffered six straight quarters of sales declines there in year-over-year terms.

Meanwhile for Ford, its sales in China for the third quarter of 2019 tumbled 30%. After its disappointing third-quarter earnings report, 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 the 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 this 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 07, 2020 14:54 ET (19:54 GMT)

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