GENERAL Motors will incur more than US$5 billion in charges and writedowns tied to its troubled operations in China as the automaker tries to salvage its once-profitable business in the world’s largest car market.
The carmaker expects to write down the value of its joint-venture operations in China by as much US$2.9 billion, it said in a securities filing on Wednesday (Dec 4) that prompted a 3 per cent stock drop in premarket trading.
The company will also take another US$2.7 billion in charges for costs to close factories and restructure its operations in China.
The moves mark the culmination of years of decline in the market by the Detroit automaker and its Chinese partner, SAIC Motor. Chinese automakers have flourished thanks to massive government subsidies and a flurry of new models that consumers have snapped up.
China has backed its domestic automakers in a bid to make them the dominant players at home and a force in the global auto industry. That has forced foreign carmakers into retreat. Over the past six years, US, Japanese, Korean and European automakers have closed or sold plants and walked away from joint ventures.
GM has not been spared from that pressure. The company lost US$347 million in China through the first nine months of this year, after posting a US$2 billion annual profit as recently as 2017.
Prior to the writedown announced on Wednesday, GM valued its stake in its joint venture with SAIC at US$6.4 billion as of the end of 2023, according to a separate filing. The lower value of its venture with SAIC is a recognition that GM’s business in the region will no longer produce the kind of earnings it previously had.
The US$2.7 billion charge is tied to a plan to restructure the venture that will see GM close plants and cut unprofitable vehicle models. A majority of that non-cash item will be recognised in the fourth quarter, according to GM’s filing. The charge and the writedown won’t affect GM’s adjusted earnings.
Despite the struggles in China, GM and SAIC believe that the venture can be brought back to profitability, GM spokesman Jim Cain said in an email. The company expects the operations will also be able to move forward without additional capital investment from GM, he said. BLOOMBERG
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