General Motors’ joint venture in China has been underperforming, leading to the company having to write down assets and bear restructuring costs totaling over $5 billion in the fourth quarter of this year.
The China division of General Motors, which was once a profit engine for the company, is now facing losses. In a regulatory filing on Wednesday, the Detroit-based automaker stated that it would reduce the equity value of its joint venture in China by $2.6 billion to $2.9 billion when it announces its performance early next year. Additionally, General Motors will incur restructuring costs of $2.7 billion, with the majority of it occurring in the fourth quarter.
The company mentioned that some of these expenses are related to “plant closures and portfolio optimization.”
In documents submitted to the U.S. Securities and Exchange Commission, General Motors stated that non-cash expenses have reduced the company’s net profit but will not impact adjusted pre-tax earnings.
For years, General Motors has held a 50% stake in its joint ventures with SAIC, along with other joint ventures including a financial arm. These ventures, which used to be profitable, have faced losses over the past year.
From January to September, these ventures incurred losses of $347 million, compared to a profit of $353 million during the same period in 2023.
As domestic brands like BYD launch price wars with the help of government subsidies, foreign automakers are increasingly struggling in the Chinese market.
Japanese automaker Nissan announced in November that it is cutting 9,000 jobs and reducing production capacity due to declining sales in its main market, primarily in China.
General Motors CEO Mary Barra warned in July that the Chinese market is becoming unsustainable for many struggling companies, as some domestic brands “seem to prioritize production over profitability.”
In the first 11 months of this year, SAIC-GM’s sales dropped by 59% to 370,989 vehicles. General Motors’ joint ventures peaked in 2018 when annual sales reached 2 million vehicles.
In March this year, Reuters reported that SAIC Group plans to lay off thousands of workers, including in joint ventures with General Motors.
General Motors’ shares fell by 3% at the opening on Wednesday.
As foreign automakers face increasing challenges in China, the U.S. government is tightening restrictions on vehicles, software, and components manufactured in China from entering the United States.
On September 23, the Biden administration proposed banning U.S. connected vehicles from using Chinese-made software and hardware for national security reasons. A Commerce Department official told Reuters on Monday that under the new rules, General Motors and Ford must stop exporting vehicles from China to the U.S.
(Information sourced from Reuters and The Hill)