Analysts believe Detroit Three automakers should exit China

Detroit's Big Three automakers, including Ford Motor and General Motors, should consider exiting the Chinese market to conserve capital during the costly transition to electric vehicles (EVs), a prominent auto analyst suggested on Tuesday. "I think you have to see the exit China as soon as they possibly can," said John Murphy, an analyst at Bank of America Securities, during his annual presentation of "Car Wars," a widely followed industry report.

Murphy suggested the following for the Big Three as he elaborated on the requirements for them to cut costs drastically to be able to compete against manufacturers of EVs such as Tesla and international automobile firms. With the companies experiencing lower sales of EVs than expected and the difficulty of escaping the middle segment, the automotive giants Ford, GM and Stellantis - owner of Jeep, have had to step up their cost cutting initiatives in all areas of the business. Murphy was quick to observe that in order for the Big Three to consistently achieve improvements in their designs, they would have to look for ways to cut costs, especially in their gas-engine divisions that now provide most of the cash.

Later at the event aimed at the Automotive Press Association in one of the Detroit suburbs, Murphy stressed that it would be necessary to ‘very aggressively manage’ the company’s core business and added that it was extremely challenging: ‘There is a lot of hard work here.’

China, the largest automotive market globally, has emerged as the most competitive for global auto makers within the last few years. Murphy and other experts noted the increased pressure from the domestic Chinese brands, as consumers continue to demonstrate their loyalty. This relationship may become further cemented in the wake of the more than 100% tariff on Chinese EVs by the US starting August 1, as pointed by Murphy.

While both Ford and GM have established their presence in China, they have seen the sales declining in the past decade. While GM once viewed China as its largest global market, it’s now only working to turn a profit there. While this Ford is restructuring to give more attention on turning into an export platform as a result of severe rivalry from local players such as BYD and Geely automakers.