GM Restructures China Operations Amidst Declining Sales, Plans Focus on Electric and High-End Vehicles

General Motors (GM) is undergoing a significant restructuring of its operations in China, including layoffs and a forthcoming meeting with its local partner, SAIC Motor Corporation. This meeting will focus on further downsizing and structural changes as GM’s sales in China are unlikely to return to the peak levels seen in 2017. According to sources, GM is cutting staff in various departments, including research and development, as part of this strategic shift.

Despite earning billions in China as recently as 2018, GM’s reevaluation marks a major strategic pivot. The company is grappling with intense competition from domestic brands in the world’s largest auto market, which is currently suffering from severe overcapacity.

The restructuring plan includes a shift towards electric vehicles (EVs) and a focus on producing higher-end models, with plans to import luxury vehicles as well. The company is considering factory capacity reductions and further layoffs as part of its strategy.

GM will continue its joint ventures with SAIC and Wuling Motors, producing lower-priced vehicles and electric cars in China, some of which will be exported. However, GM has indicated in a recent regulatory filing that maintaining sales in the Chinese market has become increasingly difficult as domestic automakers prioritize market share over profitability. As a result, GM is collaborating with local partners to completely overhaul its operations in China, which may lead to significant future expenses if losses persist.

GM’s 30-year contract with state-owned SAIC is set to expire in 2027, and the company aims to restore profitability in its Chinese operations before that deadline. The goal is to strengthen the financial position of the joint venture, which produces Buick, Cadillac, and Chevrolet vehicles, to fund its own operations and vehicle development projects.

In the second quarter, GM’s China operations posted a loss of $104 million, contributing nearly half of the company’s total $210 million loss in the first half of the year. This follows a first-quarter reduction in production in China, which GM had hoped would lead to a return to profitability.

For several months, GM has been considering a major reorganization of its Chinese operations. Chief Financial Officer Paul Jacobson hinted at these changes in an investor briefing on August 8, stating that GM needs to stay competitive and work with its partners to ensure profitability and self-sustaining cash flow, making China a valuable and continually strong asset.

GM is one of the longest-standing foreign automakers in China, having been the second foreign brand allowed to produce vehicles in the country after Volkswagen in 1997. Sales peaked at 4 million units in 2017 but dropped by nearly half to 2.1 million units last year.

In the most recent quarter, GM’s sales in China plummeted by 29% to 373,000 units, with all American brands, including Buick, Cadillac, and Chevrolet, seeing sharp declines. By contrast, SAIC-GM-Wuling Automobile, which produces more affordable vehicles, saw a smaller decline of 12%. GM believes that the partnership with Wuling holds better prospects, as demand for compact electric vehicles made in China continues to grow.

More concerning is GM’s other collaboration with SAIC, which focuses on producing American brand vehicles for China’s saturated mid-range market. As part of a strategy outlined by GM CEO Mary Barra earlier this year, the joint venture may shift its focus to higher-end models targeting affluent buyers.