GM announces $5B charge from losses in China

General Motors will incur more than $5 billion in charges from its China joint venture, following a spate of sluggish sales in the country.

Driving the news: General Motors works with China’s SAIC Motors, alongside whom it builds Buick, Chevrolet and Cadillac vehicles in the country. China required most foreign automakers to form joint operations with domestic companies before allowing them to build factories in the country.

• However, while the joint venture with SAIC used to be a major profit center for General Motors, the brand is struggling to maintain its momentum.

• Company executives have now told shareholders they expect to record a $2.6 billion-to-$2.9 billion charge due to restructuring efforts as well as a $2.7 billion charge due to a decline in its joint venture valuation.

Zooming in: While the automaker has yet to detail how it is restructuring its business model in the country, it appears to be taking drastic steps.

• Some of the $5 billion in charges stemmed from plant closures, enacted to cut back on General Motors’ spending in the region.

• Company CEO Mary Barra has also promised to heavily lower inventory in the country to boost profitability.

Looking ahead: Whether these efforts will allow General Motors to reverse the damages it has suffered in China remains to be seen.

• It has already lost $350 million from its operations in the country since the start of the year due to a 59% decline in year-to-date sales. So far, GM-SAIC has sold 370,989 units–six years ago the company was selling 2 million units annually.

• However, General Motors isn’t alone. Domestic Chinese brands, fueled in part by government subsidies, continue to capture market share, weakening the positions of everyone from Stellantis to Volkswagen.

Bottom line: General Motors is unlikely to be the only one making difficult decisions in China. As time goes on, other companies are likely to enact similar plans in the hopes of cutting their losses.

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