Detroit Three carmakers should exit China, leading analyst says

Legacy US carmakers such as Ford and General Motors should leave the China market to preserve capital amid the costly electric vehicle transition, a leading auto analyst said on Tuesday.

“I think you have to see the [Detroit Three] exit China as soon as they possibly can,”  John Murphy, Bank of America Securities analyst, said at his annual presentation of “Car Wars,” a closely watched industry report.

Murphy's guidance for the Big Three came during a discussion of the harsh cost-cutting measures they would have to take to be competitive with EV manufacturers such as Tesla  as well as carmakers abroad.

In response to slower than expected EV sales, Ford, GM and Jeep maker Stellantis have focused on cost cutting in all segments of their business. The Big Three will likely have to take more drastic measures to shave off spending, Murphy warned, specially in the carmakers' combustion-engine operations, which provide the bulk of profits.

“Very aggressively manage your core business. It is really some tough medicine. There's a lot of really hard work to do here,” Murphy said at the event put on by the Automotive Press Association in a Detroit suburb.

China, the largest automotive market in the world, has proven inhospitable for many foreign carmakers, specially in recent years.

It is difficult to overcome the strength of Chinese companies on their home turf, Murphy and other analysts noted. Buyers' loyalty to homegrown brands there is strong, and may become even stronger after the US imposes a more than 100% tariff on Chinese EVs  effective August 1, Murphy said.

Ford and GM’s sales in China have slipped over the past decade. The region used to be GM’s largest market, and the carmaker is fighting to post profits there. Ford, noting fierce competition from rivals such as BYD and Geely, is transforming its China business to become an export hub.