GM charges more than $5 billion for China operations By Reuters

Nora Eckert

DETROIT (Reuters) – General Motors Co told shareholders on Wednesday it would record two non-cash charges totaling more than $5 billion for its Chinese joint ventures. One relates to operational restructuring and the other reflects a reduction in value.

GM’s China division, once a profit engine for the Detroit company, is now loss-making. The Detroit company has struggled to compete with automakers in China, the world’s largest auto market, beating out rivals in the U.S. and Europe, thanks in part to government subsidies.

The company expects to incur costs of $2.6 billion to $2.9 billion in restructuring costs and $2.7 billion in reduced joint venture value.

It said some of the costs were related to “plant closures and portfolio optimization.”

Shares of the U.S. automaker fell 2.7% before the bell.

GM partners with China’s SAIC Motors to build Buick, Chevrolet and Cadillac vehicles.

The company’s board of directors determined that non-cash charges were necessary during “certain restructuring actions” with the joint venture, according to company filings.

GM did not disclose details of the restructuring.

A GM spokeswoman said most of the costs would be recorded in the company’s fourth-quarter earnings, reducing net income, but there would be no adjusted results.

‘Untenable’ market

CEO Mary Barra has been transforming GM’s operations in China, telling investors in October that she expects “a significant reduction in dealer inventory and a slight improvement in sales and occupancy rates” by the end of the year.

The automaker lost about $350 million in the region during the first three quarters of the year.

In March, Reuters reported that SAIC was aiming to cut thousands of jobs, including at its joint venture with General Motors.

Barra warned in July that the Chinese market was becoming unaffordable for many companies suffering losses.

Intense competition and price wars with Chinese manufacturers have already had tangible effects.

SAIC-GM’s sales fell 59% to 370,989 units in the first 11 months of the year, while local new energy vehicle champion BYD (SZ:) sold more than 10 times that number in the same period. The GM venture reached its peak in 2018, selling 2 million cars per year.

A GM spokeswoman said the company believes the joint venture can be restructured without a new cash investment from GM.

Volkswagen (ETR:), set to be overtaken by BYD as China’s best-selling brand in 2022, is seeking to deepen ties with Chinese partners including Xpeng (NYSE:) Motor and SAIC as EV technology seeks to offset sluggish sales in its biggest market. I’m trying. The German automaker and SAIC have agreed to extend their joint venture agreement by 10 years, until 2040.

Japanese automaker Nissan (OTC:) Automobile is laying off 9,000 employees and scaling back manufacturing capacity due to declining sales in China and the United States.

While some analysts are urging Detroit automakers to cut their losses and exit the world’s largest auto market entirely, GM rival Ford Motor Company (NYSE:) is transforming its presence in China into an auto export hub.