Losses in China lead to US$5b charge for General Motors

The poor performance of General Motors’ Chinese joint ventures is forcing the company to write down assets and take a restructuring charge totalling more than US$5 billion in the fourth quarter of this year.

The Detroit automaker said in a regulatory filing that it will cut the value of its equity stake in the ventures by US$2.6 billion to US$2.9 billion when it reports its results early next year. In addition, GM will take US$2.7 billion worth of restructuring charges, most of it during the fourth quarter.

The non-cash charges will reduce the company’s net income, but they will not affect adjusted pretax earnings, GM said in the filing with the US Securities and Exchange Commission.

GM for years has owned 50 per cent of its joint venture with SAIC General Motors Corp and has other joint ventures, including a finance arm. The ventures used to be a reliable source of equity income for the company, but have swung to losses in the past year.

The ventures lost US$347 million from January through September, compared with a profit of US$353 million in the same period of 2023. Still, GM expects to post a full year net profit of US$10.4 billion to US$11.1 billion.

China has become an increasingly difficult market for foreign automakers, with BYD and other domestic companies raising their quality and reducing costs. The country also has subsidised domestic automakers.

The main joint venture with SAIC, called SGM, is finishing restructuring actions that GM expects will “address market challenges and competitive conditions,” GM said in the filing.

In a note to investors, Bernstein analyst Daniel Roeska wrote that he sees two risks to GM’s China restructuring plan, that the venture will need “incremental cash” to do the work, and that there may be too many headwinds in China for the venture to become meaningfully profitable.

At a UBS industrials conference on Wednesday, GM Chief Financial Officer Paul Jacobson said the China business was valued more than a decade ago as a much larger company, and that needed to be adjusted.

One of GM’s main goals in the restructuring, he said, is to avoid sinking more capital into the venture.

“That’s been an imperative for us, is that the business has to stand on its own and it can’t take a significant amount of investment,” he said.

GM, Jacobson said, expects the venture to be profitable next year, but on a much smaller scale than in the past.

GM and SAIC are close to finalising the restructuring plans, he said.

AP