General Motors (GM) anticipates incurring more than $5 billion in charges as it restructures its operations in China, including plant closures and portfolio adjustments.
The Detroit automaker disclosed the cost in a regulatory filing on Wednesday, emphasizing that most of the expenses will be recognized as non-cash, special item charges during the fourth quarter.
GM expects to write down the value of its joint venture with SAIC Motor Corp. by $2.6 billion to $2.9 billion. Additionally, the restructuring will result in $2.7 billion in charges related to factory closures and other operational changes. These charges will affect GM’s net income but not its adjusted earnings before interest and taxes, a key metric monitored by investors.
The joint venture, known as SAIC-GM (SGM), once a robust profit center for GM, has struggled in recent years. GM’s market share in China has plummeted from 15% in 2015 to 6.8% this year, with sales falling nearly 20% in the first nine months of 2023.
GM’s difficulties reflect broader challenges faced by foreign automakers in China, where domestic manufacturers such as BYD and Geely have surged due to strong government support and a focus on electric and hybrid vehicles. Chinese automakers have captured significant market share, benefiting from subsidies and a shift in consumer preference toward electric vehicles.
In contrast, GM reported a $347 million loss from its Chinese operations in the first nine months of 2023, continuing a trend of quarterly losses that began in 2022.
Despite the losses, GM remains optimistic about the long-term prospects of its joint venture. In a statement, the company said:
“We are focused on capital efficiency and cost discipline and have been working with SGM to turn around the business in China in order to be sustainable and profitable. We expect results in China to improve year-over-year in 2025.”
The company also noted that the joint venture can complete the restructuring without requiring additional cash investments from GM.
GM’s struggles mirror those of other foreign automakers in China, including Volkswagen and Ford, which have also faced declining sales due to the rise of Chinese electric vehicle manufacturers. Ford, for instance, spent nearly $881 million on its own restructuring efforts in China this year.
GM’s stake in the SAIC joint venture was valued at $6.4 billion at the end of 2023, but the forthcoming writedown reflects the reduced earnings potential of its Chinese operations. Nonetheless, GM’s US operations remain solidly profitable, and the company projects net income of $10.4 billion to $11.1 billion for 2024.
With input from CNBC, the New York Times, and Bloomberg.
