The “Check Engine” Light Is On: General Motors Reports Over $5Bn Charge Related to China

General Motors (NYSE: GM) announced it will record two non-cash charges totaling over $5Bn billion related to its joint venture in China, reflecting restructuring costs and a diminished valuation of its operations in the region. The charges will be recorded in GM’s fourth-quarter earnings, impacting net income but not adjusted results.

Breakdown of Charges

• Restructuring Costs: $2.6Bn – $2.9 billion, attributed to plant closures and portfolio adjustments.
• Reduced Joint-Venture Value: $2.7Bn, reflecting the joint venture’s declining performance.

These moves come as GM’s China operations, once a major profit center, are now operating at a loss. In the first three quarters of this year, GM reported a $350M loss in the region.

Challenges in the Chinese Market

The world’s largest auto market has become increasingly competitive, with local carmakers benefiting from government subsidies and dominating the electric vehicle (EV) sector. GM’s joint venture with SAIC Motors, which produces Buick, Chevrolet, and Cadillac vehicles, has seen sales plummet 59% in the first 11 months of 2024 to just 370,989 units, far behind BYD, a Chinese automaker that sold over 10 times that amount during the same period.

Market Pressures

CEO Mary Barra has acknowledged the difficulties, describing the market as “untenable” for many corporations. GM is focusing on reducing dealer inventory and improving sales and market share but continues to face stiff competition and a price war initiated by Chinese manufacturers.

In March, reports indicated that SAIC planned to cut thousands of jobs, including roles within its joint venture with GM. Despite these challenges, GM has stated it believes the joint venture can be restructured without requiring new cash investments.

Industry-Wide Struggles

GM is not alone in grappling with China’s tough market dynamics:

• Volkswagen: Lost its position as the best-selling brand in China to BYD in 2022 and is now seeking deeper partnerships with local players like Xpeng Motors and SAIC for EV technology.
• Nissan: Announced plans to cut 9,000 jobs and reduce manufacturing capacity due to declining sales in China and the U.S.
• Ford: Pivoting its strategy in China to transform its operations into an export hub.

Looking Ahead

The company continues to navigate significant headwinds, with some analysts suggesting Detroit automakers may eventually need to exit China’s challenging market altogether. Despite these hurdles, GM aims to stabilize its operations and optimize its portfolio to align with changing market dynamics.