A GM Turnaround Takes Shape in a Brutal Market. Will It Catch Ford?
Key Points
It has been suggested that the Detroit automakers should exit China.
But GM is sticking with its efforts after taking a $4 billion restructuring charge.
In fact, China sales have been rebounding, and GM is aims to be profitable there this year.
"I think you have to see the [Detroit Three] exit China as soon as they possibly can." -- John Murphy
That was what the Bank of America Securities analyst said at his highly regarded presentation of "Car Wars." The kicker is that this strong suggestion was made almost exactly a year ago, and the automotive market in China has only deteriorated further due to a lack of demand, excess production capacity, and a brutal price war.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »
But General Motors (NYSE: GM) and Ford Motor Company (NYSE: F) have decided to buckle up and fight on, and there's recent data to suggest that GM is moving in the right direction. Let's take a closer look.
Hello and goodbye
As China's market for new energy vehicles (NEVs) -- a category that includes full battery-electric, hybrid, and fuel cell electric vehicles -- expanded rapidly in recent years on the back of a blossoming domestic automaking industry focused on electric vehicles (EVs), foreign automakers were mostly left in the dust.
General Motors was still a juggernaut in China as recently as 2017, when its sales there peaked at 4.04 million vehicles. China once generated $2 billion in annual income for GM. But last year, GM delivered only 1.8 million vehicles in China and only posted a profit in the fourth quarter. That's a pretty steep slide in less than a decade.
Instead of making a hard exit from China, though, GM went to work. It recorded a roughly $4 billion restructuring charge during the fourth quarter as it acted to shake up its operations. GM focused on reducing inventory significantly, implementing effective cost-cutting measures, and improving its product competitiveness in a market craving more NEVs.
The results so far
The early signs point to solid improvements from the Detroit automaker. During the second quarter, GM's sales jumped 20% compared to the prior-year period to more than 447,000. That was the largest jump in GM's quarterly sales in China since the first quarter of 2021 -- a time when the auto market was rebounding from the early part of the COVID-19 pandemic.
Without specifying what models drove the increase, GM noted that deliveries of electrified vehicles from its two joint ventures surged 50% year over year. Including GM's gains from the first quarter, the automaker's sales are up 9.4% to 890,000 year-to-date. That boost in sales should help GM toward its goal of becoming profitable in China for the year.
Catching Ford?
While Ford has been a little less transparent about how its China operations are faring since it largely stopped breaking out financial data by region, it has managed pretty well. While GM was struggling to produce quarterly profits in the country, Ford's China arm generated $900 million in earnings before interest and taxes in 2024.
Ford's Mustang in China. Image source: Ford Motor Company.
One thing investors have to remember is that a large part of Ford's China strategy now involves manufacturing vehicles there for export to other markets. One of its more important models in this strategy is the Lincoln Nautilus, which Ford exports from China to the U.S. That money-maker will face a little ding thanks to President Donald Trump's tariffs on automotive imports.
What's it all mean?
The biggest thing to note for investors who have followed Ford or GM for even a few years is that China is no longer the promised land that many had hoped. At one point, analysts expected that China would become Detroit's second primary pillar of profits behind the lucrative North American market.
If that has been part of your investment thesis for either GM or Ford, it's officially time to remove it. The kinds of sales and profits that Detroit automakers achieved in China roughly a decade ago are likely gone for good.
Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.