Six years ago, anyone who predicted doom for General Motors’ China operations would probably draw blank stares.

Back then, SAIC-GM, the joint venture between General Motors and Shanghai Automotive Industry Corp, was one of the three largest automakers by deliveries in China, alongside FAW-Volkswagen and SAIC Volkswagen.

In 2018 alone, GM’s China division sold a record 2 million cars, despite a budding trade war initiated by the then-Trump administration.

Long gone are the glory days. GM has now settled into survival mode. According to Reuters, the company said it will record two non-cash charges totaling more than US$5 billion on its joint venture in China.

One is related to restructuring of the operation, and the other reflects a write-down of its value, Reuters reported.

Sales at SAIC-GM slumped 59 percent in the first 11 months of this year to 370,989 units. As a result, mass layoffs are in the offing, with pink slips rumored for a third of its workforce in the coming months.

In a bid to calm investors, the joint venture issued a statement on December 5, saying: “The China operation is and will always be our premium asset. We will communicate and collaborate with our joint venture partner SAIC Group more closely than before, so as to become profitable and achieve sustainable growth.”

GM’s crisis sent jitters through an auto market that has already been roiled by an onslaught of price wars between foreign carmakers and their domestic rivals. Market observers are aghast at the rout of established automakers like GM in a market they long dominated.

So how did GM slide to where it is today? The reasons are manifold and open to debate. My analysis centers on the consumer’s perspective because that’s what I think is most lacking in GM’s go-to-market strategy.

While American cars overall have a mediocre reputation for their craftsmanship and attention to detail, they undeniably excel in sturdiness, safety and ride comfort. That is a collective brand asset American carmakers have crafted over the years in China. When the market is not competitive enough, they can still lean into this brand heritage.

Turning the tables

But when your opponents become 10 times larger and more powerful, the tables are turned. That is the situation GM’s China division and a number of other foreign joint ventures find themselves facing, as rising Chinese competitors give them a run for their money.

What’s more, in a stark wake-up call, these rivals are not only more responsive to customer demand but are also actively shaping it. This has left GM and other so-called “legacy automakers” struggling to keep up. In many cases, they seem too worthy of “legacy” but not so much as “automakers.”

This may sound harsh, but GM’s struggles are primarily of its own making. At the heart of its woes is a problematic product strategy, which has stifled rather than stimulated consumer demand.

Chinese car manufacturers are now in the habit of releasing new models or updates on an annual basis, while multinational companies like GM often stick with the same model for four to five years — or even as long as eight years without a major redesign or facelift.

A classic example is the XT5, a mid-sized sport utility vehicle under the Cadillac marque. The car’s launch in 2016 was followed by booming sales in China. At its heyday, the XT5 crossed the monthly sales milestone of 10,000 units in 2018.

What ensued was nothing short of a horror story. Can you believe it? It took SAIC-GM a full eight years to unveil a new version of one of its best-selling models.

Eight years! That’s the amount of time it took for Elon Musk to revive Tesla, build a Gigafactory in Shanghai and transform the debt-ridden electric carmaker into one of the world’s largest and highly valued brands, storming past Toyota. Meanwhile, GM seemed to be asleep at the wheel.

I don’t know what went on inside GM’s boardroom. There seemed to be a huge disconnect regarding the need to time the release of more innovative products in response to shifting market dynamics in China.

Slow pace of product renewal

It’s clear that GM’s pace of product renewal fell far short of expectations. During the intervening eight years, the XT5 relied heavily on discounts to clear inventory. In the meantime, its widely criticized outdated interior and infotainment system remained almost unchanged.

This could have had an easy fix. If GM had considered applying the design language and interior style of Escalade, Cadillac’s flagship full-size, all-terrain SUV, to Chinese-made models like the XT5 and CT6, a large-sized sedan that has been phased out by GM in its home market, the decision could have electrified the Chinese market.

In doing so, GM could have attracted consumers before their user habits and esthetics were permanently changed by electric vehicles. An interior modeled after Escalade’s would have provided potential buyers of the XT5 with a sense of premium, elevated luxury beyond their class. Isn’t a flattered ego a source of purchase motivation?

And this ploy could have eliminated the need for repeated, sizeable discounts that left existing owners feeling cheated and damaged the overall brand value.

Instead, GM has chosen to sit on its hands for eight whole years without introducing any “sexy” product the market had been anticipating.

Sales spiked, but for how long?

The only solace for GM is that the long-awaited new XT5, unveiled this September, has become an instant success. Deliveries reached 3,933 units in November, down from 3,992 in October and up from 1,815 in September, according to PCauto.com, a car sales tracking website. Similar upticks are also reported across a suite of GM products.

While these numbers are promising, it remains to be seen if they signal a broader recovery or are just a temporary spike.

One has good reasons to be skeptical. The sales surge can largely be credited to a promotional campaign known as “Fixed Price with No Bullshit or Shenanigans” — where all models from the GM family are made available at considerably discounted prices.

Even for the new XT5, dealers have slashed the average price by 120,000-130,000 yuan (US$16,666-18,055), down around 30 percent from the guidance price range of 400,000- 450,000 yuan.

Discounts are fine as long as they come after initial sales go flat. Otherwise, the practice only eats into dealers’ profits and erodes customer confidence. This once again raises doubts about the lasting impact of GM’s strategy.

In a market where consumers are increasingly cautious with their spending, many are taking a wait-and-see attitude.

Buying a car, much like purchasing a home or trading stocks, becomes less appealing when prices are falling, as buyers anticipate further drops and are discouraged from making purchases.

Hobbled by conservatism

To some extent, GM’s ongoing sales blitz smacks of quenching thirst with one’s own blood. Even though it’s necessitated by the current economic headwinds, such desperateness doesn’t seem to be the right cure for its long-term problems.

I’ve often noted that multinational carmakers, including GM, sometimes fail to fully recognize the importance of the Chinese market.

This might seem odd since GM’s China division was, until recently, its profit engine. Mind you, GM is also one of the largest beneficiaries of China’s efforts to bolster its automotive prowess in the 1990s through the introduction of foreign technology and capital.

But perhaps resting on its laurels, GM has long lost the chutzpah to radically upgrade its product portfolios to compete with fancy, sometimes eye-popping offerings from domestic rivals, many of whom are relatively new to the industry.

Encumbered by an unhealthy dose of conservatism, the carmaker was ambivalent and overly cautious about adopting the latest innovations that appeal to Chinese consumers or about equipping mid-range models with high-end features to boost sales.

In a cut-throat market where bold moves are often necessary to stay ahead, this kind of caution has cost GM dearly.

The author, a former Shanghai Daily opinion writer, now works as a business analyst and communication strategist. He has no conflict of interests to declare.