General Motors recently announced their new restructuring plan, whereby the company intends to cut 15,000 jobs and possibly shutter four U.S. factories across North America.
Hearing about this decision, U.S. President Donald Trump lashed out at GM on Twitter and said that he may consider cutting “all” of the automaker’s “subsidies” if they plan to close down factories in U.S. Further, he pointed out that nothing was “being closed in Mexico & China” and that GM’s bet on China wouldn’t pay off.
But avoiding China is just not on the cards for GM, as it could spell disaster for them.
First, China has emerged as the world’s largest car market, and GM has been selling more cars in China than in all of North America since 2014. In Q3 2018, GM sold 835,934 cars in the Chinese market including joint ventures, versus 700,000 in the U.S. So, there is little question about walking away.
Second, despite the slowly declining sales in China, the company still expects to book $2 billion of equity income in China in 2018.
Third, though GM’s market share has dipped a bit in China, the company has been able to garner a 9% to 10% margin in China compared to 6% to 7% for the company as a whole.