U.S. carmakers - whose once-lucrative China sales are withering - have withdrawn from promising markets such as India, Indonesia and Thailand to focus on their North American base.
As Chinese manufacturers try to sell as many cars as possible to keep their workers employed, their U.S. competitors are betting on making each vehicle sale more valuable by selling consumers software subscriptions for entertainment, hands-free driving and performance upgrades.
The Americans’ global retreat has boosted profits while leaving them with a narrower geographic base. Both Ford and GM retain dominant positions in North America and still produce and sell vehicles in China, the world’s largest car market. But their profits are largely made at home on sales of pickup trucks and sport-utility vehicles.
GM’s international retrenchment has been especially striking. In 2015, the company quit Indonesia two years after reopening a plant that it had first closed in 2005. In 2017, it left Europe after selling its two principal European brands and exited both India and South Africa.
Next to go was Thailand in 2020, with the GM plant there sold to China’s Great Wall Motors, followed by New Zealand and Australia.
From a financial standpoint, the strategy worked. GM last year earned more than $10 billion, roughly twice its annual profit a decade earlier. Ford’s earnings topped $4 billion.
But as American automakers were slow to introduce new models with the latest technology, Chinese consumers increasingly favored homegrown nameplates. Last year, more than half of the passenger cars sold in China were domestic brands, up from 36 percent in 2019, according to AlixPartners, a consulting firm.
GM last year sold half as many vehicles in China as it did in 2017; its income from Chinese operations has shriveled by nearly 80 percent since 2014. In the first quarter, the company reported a loss of $106 million.
Ford’s sales in China last year were down 28 percent from two years ago and its market share fell below 2 percent, less than half what it was in 2016. From 2018 to 2022, Ford reported more than $3.7 billion in pretax losses from its China business.
Even Tesla, which doubled its Chinese factory capacity in 2021, has been losing ground. Its market share in China fell over the course of 2023 from 10.5 percent in the first quarter to 6.7 percent in the final three months of that year, according to Bloomberg News.
Last year, China became the world’s largest auto exporter, beating Japan and Germany, according to Wells Fargo analyst Colin Langan. Even as it exported 5 million cars in 2023, China has excess production capacity of more than 11 million vehicles, enough to flood global markets with low-cost products, Langan wrote in a recent report.
Europe is expected to impose import duties of up to 30 percent on EVs from China in the coming weeks in an effort to protect domestic automakers, but some Chinese producers will still be able to earn “comfortable profit margins … because of the substantial cost advantages they enjoy,” the Rhodium Group consultancy concluded in a recent report.
Which of the above is the more successful business model?
It seems to me that China has long term view of their business and strategic economic objectives while the US has short term view of their business and strategic objectives.
Fortunately for the US, China has very severe demographic issues, otherwise they could bury US economically. China could allow immigration but likely they won’t as they are as racist as the Japanese. Japan has severe demographic issues also.
But can the US automaking industry continue to exist until China implodes demographically?
indeed, albaby1, indeed.