General Motors will incur more than $5 billion in charges and write-offs related to its troubled operations in China as the automaker tries to salvage its once-profitable business in the world’s biggest auto market.
The automaker expects to reduce the value of its joint venture operations in China by up to $2.9 billion, it said in a securities filing on Wednesday, sending shares down 3% in pre-market trading. .
The company will also record an additional $2.7 billion in charges for the costs of closing factories and restructuring its operations in China.
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These measures mark the culmination of years of market decline by the Detroit automaker and its Chinese partner, SAIC Motor. Chinese automakers have prospered thanks to massive government subsidies and a slew of new models that consumers quickly snapped up.
China has supported its domestic automakers in a bid to make them major players domestically and a force in the global auto industry. This forced foreign car manufacturers to retreat. Over the past six years, automakers in the U.S., Japan, Korea and Europe have closed or sold factories and moved away from joint ventures.
GM was not spared this pressure. The company lost $347 million in China in the first nine months of this year, after posting an annual profit of $2 billion in 2017.
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Before the write-down announced Wednesday, GM valued its stake in the joint venture with SAIC at $6.4 billion at the end of 2023, according to a separate filing. The reduced value of its joint venture with SAIC is a recognition that GM’s businesses in the region will no longer produce the kind of profits they once did.
The $2.7 billion charge is related to a joint venture restructuring plan that will see GM close factories and cut unprofitable vehicle models. Most of this non-cash item will be recognized in the fourth quarter, according to GM’s filing. The charge and write-off will not affect GM’s adjusted earnings.
Despite difficulties in China, GM and SAIC believe the joint venture can be brought back to profitability, GM spokesman Jim Cain said in an email. The company expects operations to also be able to move forward without additional capital investment from GM, he said.
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