China was the future of the car sales industry. In 2009, China surpassed the United States as the largest car market in the world. In 2017, sales there topped 27.2 million, while the United States posted sales of 17 million that year. The United States would hold at that level until last year. Sales in China fell to 21.4 million in 2019. This year, they have cratered, down 43.3% in March to 1.43 million. General Motors Corp. (NYSE: GM) and Ford Motor Co. (NYSE: F) had staked much of their future on the market.
Every major car company in the world counted China as its largest potential market. Car sales have crashed across the world due to the spreading pandemic. GM and Ford have idled factories. Each has made the strategic decision to make preserving cash as their major goal.
GM and Ford were already in trouble in China last year. GM and its local partners have the second-largest share of the Chinese market, behind Volkswagen. GM posted total 2019 sales of 3.1 million, down 15%. Ford’s situation was worse. Its sales dropped 26.1% for the same period to 567,854. Each company said it has poor product mixes for the Chinese market. Neither expects a short-term improvement.
China adds to the trouble in GM and Ford’s home market. U.S. sales are expected to drop by 20% or more in the second quarter. That means the two companies have nowhere to go to improve their fortunes.
The stock prices of the two companies tell the tale of their troubles. GM’s stock is off 34% year to date, and Ford’s is down 42%. Ford has suspended its dividend. The payout is particularly important to the Ford family, which still runs the company.
China’s car sales may recover in the second quarter, as the spread of the coronavirus has slowed there. However, the sales at these two auto companies will still erode throughout the year. Neither will improve market share, however the overall market goes.
24/7 Wall St.
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