Recently, media released that General Motors (GM) is forced to write down the value of its assets in China in the fourth quarter of this year due to poor performance of its Chinese joint ventures. In addition to the losses from its Chinese operations, GM is expected to incur a total loss of over $5 billion on its Chinese assets.
The Detroit-based automaker stated in a regulatory filing last Wednesday that it will write down the value of its equity stake in the joint ventures by $2.6 billion to $2.9 billion when it reports its results early next year. Moreover, GM has spent $2.7 billion on restructuring charges, most of which occurred in the fourth quarter. The combined losses on its Chinese assets could reach up to $5.6 billion.
GM stated in its filing with the U.S. Securities and Exchange Commission that the non-cash charges will reduce the company's net income but will not affect the adjusted pre-tax earnings.
GM holds a 50% stake in the joint venture with SAIC General Motors Corp., known as SGM, and has other joint ventures, including a financial arm. For years, these assets have been a reliable source of equity income for the group, but in the past year, GM's Chinese joint ventures have turned to losses.
From January to September of this year, GM's joint ventures in China collectively lost $347 million, compared to a profit of $353 million in the same period of 2023. Despite this, GM expects its full-year net profit to reach between $10.4 billion and $11.1 billion.
With the rise of affordable and high-quality automotive products from local brands like BYD, it has become increasingly difficult for foreign automakers to make money in the Chinese market. Over the past six years, European, American, Japanese, and Korean automakers' joint ventures in China have almost all faced factory closures, sales, or exits from the Chinese market.
GM is restructuring through its main joint venture, SGM, with SAIC to "address market challenges and competitive conditions." Media reports suggest that GM's approach to restructuring involves closing joint factories with SAIC and unprofitable product lines.
It is reported that one of GM's main goals in restructuring is to avoid investing more capital into its Chinese joint ventures. Paul Jacobson, GM's Chief Financial Officer, stated at the UBS Industrials Conference last Wednesday, "It has been imperative for us that the business must stand on its own and cannot take a significant amount of investment." He also said that GM expects its Chinese joint venture to be profitable next year, but on a much smaller scale than in the past.
In an official statement released by GM China regarding this news, it said, "Our business in China is a valuable asset for us, both now and in the future. Our cooperation and communication with our joint venture partner, SAIC, are closer than ever to achieve profitability and sustainable development." Regarding the restructuring plan, GM China stated, "To achieve long-term development goals, we are taking measures to reduce inventory, produce on demand, protect the price system, and reduce fixed costs."
Since the beginning of this year, GM's dealer inventory in China has been reduced by more than 50% (over 150,000 vehicles), no longer using the method of filling the dealers’ warehouses to beautify sales data on the factory side, which has significantly improved the health of the sales channels. In the third quarter of this year, GM's sales volume and market share in China both achieved quarter-on-quarter growth, including electric vehicles of pure electric and plug-in hybrids, which exceeded the sales of ICE fuel vehicles for the first time.
According to the latest sales information disclosed by SAIC General Motors, its sales volume has returned to a monthly level of over 60,000 vehicles in November. From January to November, the cumulative end sales volume reached 600,000 units (including exports), of which the sales volume of electric models totaled 97,056 units, a year-on-year increase of 77.4%, showing a trend of bottoming out and rebounding.
