Written by Nora Eckert
DETROIT (Reuters) – General Motors told shareholders on Wednesday it will record two non-cash charges totaling more than $5 billion at its joint venture in China, one related to operational restructuring and the other reflecting reduced value.
GM’s China division, once the Detroit company’s profit engine, is now losing money. The Detroit-based company has struggled to compete with automakers in China, the world’s largest auto market, who have priced out US and European rivals, partly fueled by government subsidies.
The company expects a charge of $2.6 billion to $2.9 billion for restructuring costs, and a $2.7 billion charge to reduce the value of the joint-venture.
Some of the costs are related to “plant closures and portfolio optimization,” it said.
Shares of the American automaker were down 2.7% before the bell.
GM has partnered with China’s SAIC Motors to build Buick, Chevrolet and Cadillac vehicles.
The company’s board decided that non-cash payments were necessary amid “certain restructuring measures” and the joint venture, according to a company filing.
GM did not disclose details of the restructuring.
Most of the charges will be recorded in the company’s earnings in the fourth quarter, reducing revenue but leaving results unchanged, a GM spokesman said.
THE MARKET’S NOT SUPPLIED
CEO Mary Barra has been turning around GM’s operations in China, and told investors in October that by the end of the year, “there will be a significant reduction in dealer inventory and a modest improvement in sales and share.”
The automaker lost about $350 million in the region in the first three quarters of this year.
In March, Reuters reported that SAIC intends to cut thousands of jobs, including at its joint venture with GM.
Barra warned in July that the Chinese market was becoming unviable with many companies losing money.
Strong competition from Chinese manufacturers and the price war are already having visible results.
SAIC-GM’s sales fell 59% in the first 11 months of this year to 370,989 units, while new electric vehicle champion BYD ( SZ: ) sold more than 10 times that figure in the same period. The GM venture peaked in 2018, selling 2 million vehicles a year.
A GM spokesperson said the company believes the organization can be restructured without new investment from GM.
Volkswagen (ETR:), overtaken in 2022 by BYD as the best-selling brand in China, is trying to deepen relations with Chinese partners including Xpeng (NYSE:) Motor and SAIC, so that EV technology can end the sales of the largest market all of them. The German automaker and SAIC have agreed to extend their joint venture agreement by ten years to 2040.
Japanese automaker Nissan (OTC:) Motor is cutting 9,000 jobs and reducing its production capacity due to weak sales in China and the US.
GM rival Ford Motor (NYSE: ) is shifting its presence in China to become an auto export hub, even as some analysts are urging the Detroit automaker to cut its losses and exit the world’s largest auto market.
