In a federal filing Wednesday morning, General Motors revealed that it anticipates non-cash losses and writedowns of more than $5 billion from a restructuring of its joint venture operations with SAIC Motor Corp. in China.
GM stated that it anticipates deducting between $2.6 billion and $2.9 billion from the value of its joint venture operations in China. According to the report, it also expects an additional $2.7 billion in expenses to restructure the business, including portfolio optimization and plant closures.
GM did not provide any further information regarding the anticipated closures, despite having previously stated plans to restructure the operations in China.
We have been working with SGM to turn around the business in China so that it is sustainable and profitable in the market, and as we have stated repeatedly, we are focused on capital efficiency and cost discipline. “With our partner, we are nearing completion of our restructuring plan, and we anticipate year-over-year improvement in our results in China in 2025,” GM stated in an email statement.
According to GM, the joint venture can restructure without the American carmaker having to make any more financial expenditures.
It is anticipated that during the fourth quarter, the majority of the $2.7 billion in restructuring expenses will be recorded as non-cash, special item items. They will therefore affect the automaker’s net profits, but not its adjusted earnings before interest and taxes, which is a crucial indicator that Wall Street keeps an eye on.
Over the past ten years, GM’s business activities in China have changed from being a source of profit to a liability as a result of growing competition from domestic automakers supported by the government and driven by nationalism, as well as a generational shift in customer attitudes toward the automotive sector and electric vehicles.
In 2014 and 2015, GM’s joint ventures and Chinese operations generated a peak equity income of over $2 billion.
For the first time since 2003, GM’s market share in China, including its joint ventures, fell below 9% last year, from almost 15% as recently as 2015. According to regulatory filings, GM’s equity income from operations has also decreased, falling 78.5% since reaching its peak in 2014.
Sales of GM’s American brands, including Buick and Chevrolet, have declined more than those of its joint ventures with SAIC Motor, Wuling Motors, and others. About 60% of the company’s 2.1 million vehicles sold in China last year were joint venture models.
A $167 million deficit in the first quarter of 2020 as a result of the coronavirus epidemic and a $87 million loss in the second quarter of 2022 were the only quarterly losses for GM in China since 2009.
The Detroit automaker has recorded $347 million in equity income losses for its Chinese business for three consecutive quarters this year. Included in that is a $137 million loss for the third quarter.
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