GM Announces Non-Cash Charges Over $5 Billion for China Joint Venture

By Nora Eckert

DETROIT (Reuters) – General Motors informed shareholders on Wednesday that it will record two non-cash charges totaling over $5 billion related to its joint venture in China. One charge pertains to restructuring, while the other reflects a decrease in value.

The expected restructuring costs will be between $2.6 billion and $2.9 billion, whereas the reduction in joint venture value is estimated at $2.7 billion.

Following the announcement, GM's shares dropped by 2.7% before the market opened.

GM collaborates with SAIC Motors in China to manufacture Buick, Chevrolet, and Cadillac vehicles. According to a company filing, the board of directors deemed these non-cash charges necessary because of a revised business forecast and restructuring actions in the joint venture.

Details about the restructuring have not been disclosed. Most charges will appear in the company's fourth-quarter earnings, impacting net income but not adjusted results, as stated by a company spokesperson.

CEO Mary Barra is making significant changes to GM's operations in China, which has transformed from a previous profit center into a loss. Barra assured investors in October that improvements would manifest by year-end, alongside a 'significant reduction in dealer inventory and modest improvements in sales and share.'

This year, GM has reported a loss of approximately $350 million in China during the first three quarters.

In March, reports surfaced that SAIC intended to cut thousands of jobs, including those at its GM joint venture. Barra has also noted the challenging nature of the Chinese market, stressing that it is unsustainable given the number of companies currently operating at a loss. "It's a difficult market right now. And frankly, it's unsustainable because the amount of companies losing money there cannot continue indefinitely," she stated in July.

Intense competition from domestic manufacturers and ongoing price wars have had noticeable repercussions. Sales at SAIC-GM fell 59% in the first 11 months of this year, totaling 370,989 units, while local leader BYD sold more than ten times that amount. The peak year for the GM joint venture was 2018 with annual sales of 2 million units.

In response to its declining market share, Volkswagen is enhancing collaborations with Chinese partners such as Xpeng Motor and SAIC to advance electric vehicle technologies. Recently, they extended their joint venture contract until 2040. Concurrently, Nissan Motor is planning to eliminate 9,000 positions and reduce its manufacturing capacity due to declining sales in China and the United States.

Ford Motor, GM's local competitor, is also reimagining its role in China by transforming into a vehicle export hub, although some analysts advise American automakers to consider withdrawing from this crucial automobile market altogether.