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 a tough 2020, underscoring the challenges that U.S. car makers are facing as the world's largest auto market enters its first protracted decline in nearly three decades.

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. China's trade tensions with the U.S., as well as rising levels of unused factory space that can weigh on earnings, have made the problems worse.

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 the auto maker'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. 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.

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. 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 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 tumbled 30%. After a disappointing earnings report this fall, 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 17:59 ET (22:59 GMT)

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