Business
General Motors’ China business is hurting, and it’s not just because of Covid
CFOTO | Future Publishing | Getty Images
The company’s market share in the country, including its joint ventures, has plummeted from roughly 15% in 2015 to 9.8% last year — the first time it has dropped below 10% since 2004. Its earnings from the operations also have fallen by nearly 70% since peaking in 2014.
related investing news
The coronavirus pandemic, which originated in China, is partially to blame. However, the declines started years before the global health crisis and are growing increasingly more complex amid rising economic and political tensions between the U.S. and China.
There’s also growing competition from government-backed domestic automakers fueled by nationalism and a generational shift in consumer perceptions regarding the automotive industry and electric vehicles.
Take, for example, Will Sundin, a 34-year-old science teacher who told CNBC he never envisioned buying a Chinese-branded vehicle when he moved to the country in 2011. More recently Sundin purchased a Nio ET7 electric vehicle as his daily driver in Changsha, the capital city of China’s Hunan Province.
“I wanted something big and comfortable, but I also wanted something that was a bit quick,” he said. “I like the look of it.”
Sundin, who moonlights as a YouTube car reviewer, knows the Chinese vehicle industry well. He purchased his Nio over models from rival Chinese automakers Xpeng, Li Auto and IM Motors. He said the vehicle’s ability to swap out the battery for a fresh one, rather than recharging, “put it ahead pretty quickly.”
Not on his consideration list? American brands such as GM’s Cadillac and Buick, which initially led the automaker’s growth in China.
“Cadillac has a good image in China, but it’s expensive,” said Sundin, who previously owned a 2012 Ford Focus. “I think the problem they face is that they have competition, new competition, a lot of new competition, from different directions that they weren’t expecting.”
Will Sundin, who lives in Changsha and is standing in front of his new Nio ET7 electric vehicle.
Source: Will Sundin
That competition is increasingly becoming a problem for GM, which has acknowledged such issues with its Chinese business. However, the company has not offered much assurance on how to reverse the trend other than the promise of new EVs and a new business unit called The Durant Guild that will import pricy vehicles with high margins from the U.S. to China.
While many U.S. brands aren’t performing well in China, GM’s decline is especially notable. GM’s operations in the country are much larger than those of its crosstown rival Ford Motor, for example. It also has a much smaller footprint globally after shedding its European operations and shuttering operations elsewhere to largely focus on North America, China and, to a lesser extent, South America.
Being overly reliant on only a few markets can be risky. But it has led to record earnings for GM, as the company under CEO Mary Barra has done away with underperforming operations. Electric vehicles could be a new opportunity for GM to grow globally, but experts say it would be an uphill battle compared with recovering in China in the years to come.
“With the changes that they put in place, with a refocus on North America and China, the pull out of Europe, essentially, that does create a risky scenario now that you have some issues, multiple issues, going on in the Chinese market,” said Jeff Schuster, executive vice president of LMC Automotive, a GlobalData company.
Downplaying results
GM has been downplaying the role of its operations in China in recent quarters, including CFO Paul Jacobson saying China is “not decisive” to GM’s financial performance when he discussed earnings in October.
Barra said in December that China is an important part of GM’s business but that the company also is paying attention to other issues, which then included the government’s now-defunct “zero Covid” policy and recent protests.
“We still see opportunity there … obviously, we also watch the geopolitical situation. We can’t operate in a vacuum,” she said during an Automotive Press Association meeting. “But we continue to see opportunity there and we’ll continue to evaluate the situation, but our plans are to be in a leadership position in EVs.”
A bright spot for GM in China has been its Wuling Hongguang Mini, made by a joint venture, which is the bestselling EV in the market. Since going on sale in mid-2020, the economy car has sold more than 1 million units.
SAIC-GM-Wuling Automobile Co. electric vehicles are plugged in at charging stations at a roadside parking lot in Liuzhou, China, on Monday, May 17, 2021.
Qilai Shen | Bloomberg | Getty Images
Still, Jacobson earlier this year said China’s handling of the coronavirus pandemic and surging Covid cases accounted for the nearly 40% drop in equity income for the operations in 2022.
GM reports its earnings from China as equity income because the country mandates joint ventures for non-Chinese automakers — other than Tesla, which was granted an exemption. GM has 10 joint ventures, two wholly owned foreign enterprises and more than 58,000 employees in China. Its brands include Cadillac, Buick, Chevrolet, Wuling and Baojun.
“We see a lot of Covid cases in China right now that slowed down the consumer. So we expect it’ll be a little bit of a slow buildup but hopefully, working its way back up to levels that we’re used to over time,” he told reporters on Jan. 31 during an earnings call.
Not just Covid
But it’s not just related to the pandemic. Equity income from GM’s Chinese operations and joint ventures has fallen 67% since its peak of more than $2 billion in 2014 and 2015. That includes a decline of about 45% from then to 2019 — prior to the coronavirus crippling China’s economy and vehicle production. In 2022, GM’s Chinese operations garnered equity income of $677 million for GM.
“This is not Covid. This started well before Covid,” Michael Dunne, CEO of ZoZo Go, a consulting firm focused on China, electrification and autonomous vehicles. “It also coincides with escalating tensions between the United States and China. There’s no question, and it’s impossible to measure, but it’s definitely a factor.”
Dunne, president of GM’s Indonesia operations from 2013-15, said the decline of GM and other nondomestic automakers comes alongside China’s market growth slowing, Chinese automakers becoming increasingly more competitive and the shift to all-electric vehicles — which has been massively subsidized by government agencies.
“They’ve all really taken it on the chin in the last five years as middle market brands. The Chinese consumers are increasingly buying Chinese brands,” he said. “That’s a seismic shift … the mindset has changed.”
Employees work on the assembly line of Buick Envision SUV at a workshop of GM Dong Yue assembly plant, officially known as SAIC-GM Dong Yue Motors Co., Ltd on November 17, 2022 in Yantai, Shandong Province of China.
Tang Ke | Visual China Group | Getty Images
Domestic startups and automakers have helped Beijing realize its goal of boosting penetration of new energy vehicles — a category that includes electric cars. More than one-fourth of passenger cars sold in China last year were new energy vehicles, according to the China Passenger Car Association, which predicts penetration will reach 36% this year.
Local companies rushed to grab a slice of that growth in an auto market that was slumping overall. Startups such as Nio helped promote the idea of electric vehicles as part of an aspirational lifestyle and status symbol in China. And the rising quality of domestic-made electric vehicles helped support — and tap — growing nationalistic pride among China’s consumers.
Chinese brands have grown market share by 21% since 2015 to roughly half of all passenger vehicles sold in China last year, according to the China Association of Automobile Manufacturers. For comparison, sales of American brands in the U.S. during that time have been level at about 45%.
“Obviously the market has just been in a different place; a lot of it is policy-driven,” Schuster said.
The impact of Chinese nationalism
LMC Automotive reports Chinese companies accounted for half of the top 10 automakers in sales in the country last year, up from only three in 2015. The most notable is BYD Auto, an electric automaker that has skyrocketed from sales of roughly 445,000 units since then to nearly 2 million last year, making it one of the top five automakers by sales in China.
“I think the No. 1 reason for GM’s decline is this tilt toward Chinese nationalism,” Dunne said. “That takes the form of China has declared that it wants to be the global dominator in electric vehicles and it’s doing everything in his power to cultivate national champions like BYD.”
Aside from GM, America’s other legacy automakers — Ford and Chrysler-descendent Stellantis — have not fared much better. Both have experienced significant downturns in sales; however, neither has communicated any plans on giving up on the market.
In February, Ford named Sam Wu, a former Whirlpool executive who joined the automaker in October, as president and chief executive of its China operations, starting March 1.
Ford’s market share in China has been about 2% since 2019, down from 4.8% in 2015 and 2016, according to the company’s annual filings.
Ford’s problems in China aren’t just overseas. The company said in February it will collaborate with Chinese supplier CATL on a new $3.5 billion battery plant for electric vehicles in Michigan. The deal has been criticized by some Republicans, including Sen. Marco Rubio of Florida, who requested the Biden administration review Ford’s deal to license technology from CATL.
Ford CEO Jim Farley on Feb. 13, 2023 at a battery lab for the automaker in suburban Detroit, announcing a new $3.5 billion EV battery plant in the state to produce lithium iron phosphate batteries, or LFP, batteries.
Michael Wayland/CNBC
The joint venture between Stellantis and Guangzhou Automobile Group producing Jeep vehicles in China filed for bankruptcy in late 2022 following a decision to dissolve the partnership and import its SUVs into the country.
Stellantis CEO Carlos Tavares has said the company is pursuing an “asset-light” approach in the country, focused on boosting profits and not necessarily sales, which declined 7% in 2022.
“It’s also important that you realize that our financials in China have been improving significantly,” he told reporters during a call last month, saying the company is “cleaning up the place.”
While the American-focused automakers regroup, China’s local automakers continue to gain ground in their home market.
“People in China are proud,” said Nio owner Sundin.
“The same way as ‘American Made’ is in the USA and all the patriotism behind that, in China, [it’s] the same thing: ‘Finally, we can make a phone or we can make a car that’s as good or better than foreign automakers.’”
— CNBC’s Evelyn Cheng contributed to this report.
Shares of the company soared more than 45% during after-hours trading.
For the quarter ended Jan. 28, net sales dropped slightly to $2.23 billion from $2.25 billion in last year’s fourth quarter. The video game retailer also posted a profit of $48.2 million, or 16 cents a share, compared to a loss of $147.5 million, or 49 cents, a year ago.
GameStop did not provide financial guidance and has not done so since the early days of the pandemic. Its results can’t be compared with Wall Street estimates because too few analysts cover the company.
The retailer had been working to steer itself back to profitability, and got there in part by cutting costs. Selling, general and administrative expenses came in at $453.4 million for the quarter, or 20.4% of sales, compared to $538.9 million, or 23.9% of sales, in the year-earlier period.
Scott Olson | Getty Images
CEO Matt Furlong said on an investor call the company is going into 2023 with further plans to cut excess costs including in European markets, where it has already exited and begun to pull out of some countries. He said that GameStop is also considering bolstering its business with higher margin categories such as toys.
GameStop had previously been riding some short-term, meme-stock momentum, but that has since leveled out and the company has made progress in right-sizing its business by cleaning up its inventory levels and reworking its cost structure.
The stock closed trading on Tuesday at around $18 per share, down dramatically from its 52-week high of nearly $50 about a year ago.
GameStop’s turnaround plan was reinvigorated by a leadership shake-up in 2021 that put Furlong, an Amazon veteran, at the helm and added Ryan Cohen, Chewy founder and former Bed Bath & Beyond activist investor, as board chair. The company also laid off staff and replaced its chief financial officer.
The retailer has been working to revamp its real estate portfolio and increase its online business as the video game industry heads in that direction.
For the full fiscal year, GameStop saw $5.93 billion in sales, down slightly from $6.01 billion in fiscal 2021, and saw increased revenues from its collectibles category, which the retailer is banking will promote long-term growth.
Like many retailers, GameStop experienced supply chain delays that left it with a backlog of inventory after it previously tried to meet high demand. The company is still hanging on to $682.9 million in inventory, which is down from $915 million a year ago, according to its fourth-quarter balance sheet.
As part of its revival strategy, GameStop also has been trying to improve its cash balance. This quarter, its cash and cash equivalents were $1.39 billion.
While managing the burdens of its brick-and-mortar presence, the company has also been working to find its digital identity. So far, those experiments have come with a few missteps.
In September, it launched an ill-fated partnership with the now-bankrupt crypto exchange FTX. The companies had planned to collaborate on e-commerce marketing and GameStop was going to sell FTX gift cards in its stores. Two months later, GameStop tweeted that it would be “winding down” the partnership and refunding anyone who had purchased an FTX gift card in its stores.
In addition, the company has been experimenting with an NFT marketplace since July. That launch came amid chatter of a “crypto winter” as cryptocurrencies experienced a widespread cooldown from their 2021 rallies. The marketplace saw an initial volume surge but has since leveled off and may not be the ticket to a stable digital presence the company had hoped it would be.
Still, Furlong said on a call with investors that compared to 2021, when many “predicted we were heading for bankruptcy,” the company is better positioned.
“GameStop is a much healthier business today than it was at the start of 2021,” he said.
Mike Segar | Reuters
Nike, like other retailers, has been in the process of offloading a glut of inventory brought on by supply chain disruptions and shifting consumer demands that’s been weighing on its margins.
related investing news
Gross margins were down to 43.3% for the quarter, a decrease of 3.3 percentage points, due to higher markdowns and promotions its used to liquidate its inventory.
While Nike CEO John Donahoe told investors last quarter he believes the company is past its inventory peak, the company warned gross margins were expected to take a hit during the holiday quarter.
Inventories were up 16% compared with the year ago period at $8.9 billion, which the company attributed to higher product input costs and elevated freight expenses.
Here’s how the sneaker giant performed in its third fiscal quarter of 2023 compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:
- Earnings per share: 79 cents vs. 55 cents expected
- Revenue: $12.39 billion vs. $11.47 billion expected
The company’s reported net income for the three-month period that ended Feb. 28 was $1.2 billion, or 79 cents per share, compared with $1.4 billion, or 87 cents per share, a year earlier.
Sales rose to $12.39 billion, up 14% from $10.87 billion a year earlier.
Nike has been looking to see a sales rebound in China, its third-biggest market by revenue, as the region recovers from the Covid pandemic. But those hopes failed to materialize. Sales were down 8% in the region during the third quarter to $1.99 billion, despite the end of China’s zero-Covid policy that had weighed on operations.
Wall Street analysts had anticipated sales in the region of $2.09 billion, according to StreetAccount estimates.
Sales in China have been soft as consumers contended with sweeping lockdowns and rising infections. While some activity has begun to pick back up, consumers aren’t back to pre-pandemic shopping levels just yet, according to a Citi research note.
Outside China, Nike saw double-digit sales increases in all of its other markets. Sales in North America were up 27% and in Europe, Middle East and Africa, revenue jumped 17% compared with the year-ago period. In Asia Pacific and Latin America, sales were up 10%.
DTC
For the last several years, Nike has been working to build out its direct-to-consumer sales and has invested heavily in the channel by building out experiential stores, developing its loyalty program and growing its e-commerce sales.
The investments into its DTC channel has come at a cost, but sales have continued to grow. Nike Direct sales were up 17% during the holiday quarter to $5.3 billion and Nike digital sales jumped 20%.
Selling and administrative expenses were up 15% to $4 billion, the bulk of which was related to wage-related expenses and Nike Direct costs.
As part of its efforts to focus on DTC, Nike has ties with a host of wholesalers, and over the last two quarters has relied on those partnerships to offload inventory. Wholesale revenues were up 12% in the quarter, following 19% growth during the previous quarter.
On Monday, Foot Locker CEO Mary Dillon touted a “renewed” and revitalized relationship with Nike, its biggest brand partner.
Jeff Halstead | Icon Sportswire | Getty Images
Last year was transformative for women’s professional soccer, as Berman took the helm of an organization that had been plagued with problems ranging from accusations of emotional and sexual abuse and sexism, and an overall lack of confidence in the league.
The NWSL hired Berman, who was a labor lawyer at Proskauer Rose for 13 years, in March 2022, from her role as deputy commissioner of the Premier Lacrosse League. Her biggest priorities? Restore faith in women’s soccer and grow the business.
Since then, the commissioner has made changes to not only drastically transform the culture of the league but also supersize the business through its infrastructure, staffing and rules. Sports Business Journal named her the “Best Hire of the Year” for 2022.
It’s all led to a pivotal moment for the league, as it looks to add more teams and its media deal is up for grabs. Then, this summer, the FIFA Women’s World Cup will put the league’s talent on display – about 25% to 30% of NWSL’s players will travel to Australia and New Zealand for the tournament.
At the moment, the league has momentum. Berman told reporters Tuesday that business is strong and ticket sales are rising.
“Attendance and ticket sales are really the rocket fuel that will grow this league,” she said. “We’re up 20% in season ticket holders on a league-wide basis.”
Building on a strong year
More than 1 million fans attended matches last year, the league said, as nearly every market grew following the pandemic. Attendance was up about 80% in 2022, while ticketing revenue grew more than 125%, according to NWSL.
Sponsorship revenue also surged 87% last year, Berman said. The league averaged 37 sponsorship deals per team, which is more than any other women’s sport, according to sports data and intelligence platform Sponsor United. The league also plans to expand to 14 teams from 12 beginning next year.
The NWSL just signed a deal to bring soccer back to Utah with a new ownership group in a deal reportedly worth between $2 million and $5 million, a major bargain that had been part of a deal negotiated in 2020, before team valuations started to soar.
The league is also in advanced discussions to further expand in San Francisco for 2024, followed by Boston, which is launching “later,” both with a whopping $50 million franchise tag, according to The Wall Street Journal.
Women’s pro soccer valuations are also soaring. It used to take a few million dollars to get in on the league. Today, Angel City FC, based in Los Angeles, is valued at $100 million, according to Sportico.
NWSL commissioner Jessica Berman speaks during the 2023 NWSL Draft at the Pennsylvania Convention Center on January 12, 2023 in Philadelphia, Pennsylvania. (Photo by Tim Nwachukwu/Getty Images)
Tim Nwachukwu | Getty Images Sport | Getty Images
Athletes, celebrities and investors all want a piece of the action. Big name investors include everyone from Eli Manning, Kevin Durant, Sue Bird, Natalie Portman and Jennifer Garner.
“I think, if anything that we’ve learned in the last 11 months, which is that the market will tell us our value so long as we give it the appropriate opportunity to produce that value. And everything that I’ve seen, has validated that,” Berman said.
The league is busy looking for new ownership groups in Chicago and Portland after a yearlong investigation. Portland Thorns owner Merritt Paulson and Chicago Red Stars owner Arnim Whisler both announced in December, they would be selling their teams.
Berman said the vetting stages for new ownership groups in Chicago and Portland are in “advanced stages,” and they aren’t going to set an “artificial deadline.” She said it’s about putting the right person in place who is not just well resourced but also willing to invest in the club to provide a professional environment.
“The old ways of doing business are probably no longer applicable,” Berman said. “We’re not going to close deals in 30 to 60 days. We’re dealing with really sophisticated people who appropriately have questions,” she added.
Berman says they are not looking for the quick win when it comes to ownership, rather finding the right partner.
“We’re looking to go from a mentality of surviving to thriving,” she said. “I think all of that requires a changes in mentality, culture and expectations.”
As part of that transformation, Berman and the league are investing heavily.
The league recently moved its headquarters to Madison Avenue in New York from Chicago. It is also beefing up staff, doubling the number of people in the league office in order to support all the new initiatives they are working on. Berman said multiple teams have doubled or tripled their investment into staffing as well.
“These little things actually matter in terms of having people feel professional and valued,” she said.
In January, ahead of the NWSL draft, Berman outlined major updates to the salary cap. Each team will see a 25% increase from $1.1 million per year in 2022 to $1.375 million in 2023.
Media deal up for grabs
Viewership for NWSL matches also rose 30% last year on Paramount +.
Last year’s championship, which aired in primetime thanks to sponsor Ally Financial upping its financial commitment, was the most-watched game in league history, with a 71% increase in viewership. Paramount+ said it was the most streamed NWSL matched ever, even though it was up against Game 1 of the World Series and a college football game between rivals Michigan and Michigan State.
These metrics should come in handy as the league’s three-year, $4.5 million deal with Paramount Global, which also owns CBS, is set to expire at the end of the new season.
Berman said she’s had robust conversations about the rights, and said there are several interested parties.
“We think that there are some really interesting opportunities here and overseas to consider as we think about growing our brand globally and really claiming our space as the best league in the world,” she said.
The league also announced a recent partnership with EA Sports to feature NWSL players and clubs in EA Sports FIFA game for the first time ahead of a new season.
Culture change
OL Reign forward Megan Rapinoe (15) scores on a penalty kick during the second half of the National Womens Soccer League game between NJ/NY Gotham FC and OL Reign on September 21, 2022 at Red Bull Arena in Harrison, New Jersey.
Rich Graessle | Icon Sportswire | Getty Images
The NWSL’s culture is under the microscope, as well.
The league is implementing major reforms – from new mandatory training sessions, the addition of anonymous hotlines, player surveys, safety officers, mental health benefits and more.
The league was involved in a yearlong investigation after two former players came forward and accused longtime coach Paul Riley of sexual harassment. Sally Yates, a former top Justice Department official, conducted her own investigation, as well. The reports confirmed the allegations of systemic abuse, sexual misconduct and found “widespread misconduct” in more than half of the league’s teams.
Berman took swift action following the findings, making changes in personnel, putting new infrastructure in place to prevent future problems and issuing massive fines to the offending teams. The NWSL permanently banned Riley and three other coaches who were accused of misconduct. Riley has denied the accusations.
“The teams are really welcoming of the increased focus and support in this area knowing that it is really sort of table stakes as we think about the growth of the league,” Berman said.
Berman spent much of her first year as commissioner on a “listening tour,” meeting with players, coaches and executives to hear “first-hand experiences” and what needs to change.
Today, Berman hopes the new changes and protections will position the league for success.
Berman said she’s heard from players that they are tired from the burdens of having to carry some of weight of culture challenges and reforms.
“I think it’s their hope that we the league and through ownership and management can really take on the burden and work behind the scenes to offer the playing environment that meets the standard that I’ve committed to, which is a place that makes the players proud to play,” Berman said.
Odisha: Opposition objects to Naveen Patnaik reading out speech while replying to debate in Assembly
Railways lowers fare of AC-3 tier economy ticket, check details
Australian Banks Ordered to Report Crypto Transactions
Walmart-owned Sam’s Club plans to open about 30 new stores over next five years
22/7 Project’s Reina Miyase Graduates From Franchise
NBUniversal expects Peacock losses to peak this year as streamer slowly adds subscribers
Watch: Bride Arrives At Wedding Venue In Madhya Pradesh Driving Tractor
In September 2022, ‘The Lord of the Rings: Gollum’ will be released for PC, PS5, and Xbox Series X.
Dhaakad Day 1 Box Office Report: Kangana Ranaut’s film debuts poorly in front of Bhool Bhulaiyaa 2 by Kartik Aaryan.
-
Entertainment2 months agoFake heiress Anna ‘Delvey’ Sorokin, while on house arrest, to star in new reality show – National | Globalnews.ca
-
Tech2 months agoTesla shares pop on ‘better than feared’ earnings results, demand outlook
-
Crypto2 months agoTesla refuses to sell any more Bitcoin
-
Business2 months agoSouthwest forecasts lingering losses as bookings slow in wake of holiday meltdown
-
Anime & Manga2 months agoStoneBot Comics Provides Statement on Kamen Rider Kuuga Manga’s Translation Differences from Initial Preview
-
Odisha News2 months agoPolice Medals: 34 Odisha Police personnel awarded on Republic Day
-
Politics2 months agoChhattisgarh CM Bhupesh Baghel announces unemployment allowance
-
Fashion2 months agoRobert Wun Couture Spring 2023
You must be logged in to post a comment Login
You must log in to post a comment.