GM Faces Battle in China to Regain Lost Ground

General Motors Co. faces a critical test winning back consumers in China, a market integral to its fortunes. Global auto makers are looking to China, where auto sales have rebounded more strongly than in the U.S. and Europe, to help them recover from a prolonged market slump exacerbated by the coronavirus pandemic.

Few auto makers are as reliant on China as GM, which typically records nearly half of its global unit sales in the country. It has long had a dominant position as the No. 2 player behind Volkswagen AG, but there are signs it is starting to lose its grip.

GM has underperformed the broader China auto market for seven straight quarters. In the just-ended period, its sales fell 5.3% from a year earlier, compared with the broader car market’s 3.4% pullback, according to China Passenger Car Association figures released Wednesday.

Over the past two years, GM has lost a quarter of its sales there, to just over 3 million last year from about 4 million cars in 2017.

To reverse the slide, GM has launched fresh models and revamped its brands. It also recently reshuffled its China leadership team. The Chinese market had been a strong source of profits for the Detroit auto maker until the pandemic.

“GM’s commitment to China has never wavered,” said a company spokeswoman, attributing GM’s weak sales to China’s tough market conditions and more recently to Covid-19. “We are leveraging our strong business foundation built over the past two decades combined with China’s scale to achieve success for the long haul.”

While GM remains second in China sales, its share of the passenger-car market has dwindled to less than 15% last year from 23% in 2012, according to the CPCA and the auto makers’ own sales data.

The auto maker has lost market share chiefly to Volkswagen and Japan’s Honda Motor Co., Nissan Motor Co. and Toyota Motor Corp., but also to local companies.

This year, the coronavirus dealt another blow to overall demand, resulting in a 22.5% drop in all car-buying in China in the first half from a year earlier. GM’s sales dropped a little more, 25%, to 1.18 million.

The Chinese auto market is bouncing back faster than expected, based on data Friday from the China Association of Automobile Manufacturers that reflected a 10% uptick in wholesalers’ stocking up on new models in the second quarter of 2020 from the year-earlier period.

Now, GM faces the work of shoring up its position in the country. GM Chief Executive Mary Barra said at a press event in June that she thought GM was well-positioned in China, with new electric cars among the products she said would attract local consumers.

“I think we’re going to be in a sweet spot where there is a growth opportunity,” she said.

In China’s wealthier coastal cities, GM has been losing ground to German and Japanese rivals. In smaller inland markets, where consumers tend to be more price-conscious, it has been ceding sales to nimbler local auto makers, such as Geely Automobile Holdings Ltd. and Great Wall Motor Co.

One bright spot has been Cadillac, with its China sales tripling in recent years before the pandemic.

Zhang Cheng, a car dealer in the northern city of Zhangjiakou, last year ditched GM in favor of Volkswagen, blaming “the poor competitiveness of American cars.”

He said other players have become more adept at releasing new models quickly and honing them to local tastes.

One of the challenges for GM is what Michael Dunne, a longtime analyst of China’s auto market and chief executive of the consulting firm ZoZo Go, calls a perception among Chinese consumers that “the Germans are serious auto makers, the Japanese are economical and reliable and the Americans are just all about marketing.”

Other foreign car makers have lost even more of their China foothold. Ford Motor Co. sold 568,000 vehicles in China last year, down 55% from its 2016 peak. France’s PSA Group sold 113,000 Citroën and Peugeot cars last year, an 84% drop from the peak in 2015.

In April, Renault SA quit its main China joint venture entirely, blaming an irreversible collapse in sales. Suzuki Motor Corp. left in 2018 for similar reasons.

But the Chinese market has never been as significant for these companies as it has been for GM, which has quit Europe, India and most of its other major global markets.

GM took in $1.1 billion in income from China last year and expects to make about $200 million a quarter once the market fully recovers from