GM is struggling so badly in China that it had to announce massive charges to get its business in order

Reuters
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China, once GM’s largest and most important market, has become its biggest problem.

General Motors told shareholders on Wednesday that it would record two non-cash charges totaling more than $5 billion for its China joint venture, one related to restructuring its operations and another that reduced its reflect value.

GM expects the charge for restructuring costs to be $2.6 billion to $2.9 billion and the charge for reduced joint venture value to be $2.7 billion.

Shares of the automaker lost 2.7% before the trading session.

GM works with SAIC Motors in China to build Buick, Chevrolet and Cadillac vehicles.

The company’s board decided that the non-cash charges were necessary “in light of the completion of a new business forecast and certain restructuring measures” with the joint venture, according to a company statement.

GM has not disclosed details of the restructuring.

According to a company spokesman, most of the charges will be reflected in the company’s fourth-quarter earnings, reducing net income but not adjusted results.

CEO Mary Barra has reshaped GM’s operations in China as its former profit engine slipped into loss last year. Barra told investors in October that they would see improvements from those efforts by the end of the year, saying there would be “significant reductions in dealer inventory and modest improvements in sales and market share.”

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

In March, Reuters reported that SAIC was seeking to cut thousands of jobs, including in its joint venture with GM.

Barra previously warned that the Chinese market was becoming unsustainable for many companies.

“It’s a difficult market at the moment. And frankly, it’s unsustainable because the number of companies losing money there can’t last forever,” Barra said in July.

The strong competition from domestic manufacturers in the country and the price war have already had a visible impact.

Sales at SAIC-GM plunged 59% to 370,989 units in the first 11 months of this year, while local new energy vehicle champion BYD sold more than 10 times those cars in the same period. The GM joint venture peaked in 2018 with annual sales of 2 million cars.

Volkswagen, which lost its title as the best-selling brand in China to BYD in 2022, is stepping up efforts to deepen ties with Chinese partners such as Xpeng Motor and SAIC for EV technologies to counter declining sales in its largest market. The German automaker and SAIC recently agreed to extend their joint venture agreement by a decade until 2040.

The Japanese car manufacturer Nissan Motor is also cutting 9,000 jobs and significantly reducing its production capacity due to declining sales in China and the USA

In Detroit, GM’s cross-city rival Ford Motor is transforming its presence in China into a vehicle export hub, even as some analysts are urging Detroit automakers to cut their losses and exit the world’s largest auto market entirely.