By Nora Eckert
DETROIT (Reuters) -General Motors told shareholders on Wednesday that it would record two non-cash charges totaling more than $5 billion on its joint venture in China, one related to the restructuring of the operation and another reflecting its reduced value.
GM's China division, once a profit engine for the Detroit company, is now losing money. The company has struggled to compete with carmakers in China, the world's largest auto market, who have charged past U.S. and European rivals, partly buoyed by government subsidies.
The company expects a charge of $2.6 billion to $2.9 billion for restructuring costs, and a charge of $2.7 billion for reduced joint-venture value.
Some of the charges are related to "plant closures and portfolio optimization," it said. GM's Chief Financial Officer Paul Jacobson said the restructuring efforts are in their final stages during an analyst conference on Wednesday.
The finance chief said GM is seeking to be profitable in China next year and believes its joint venture can restructure without additional funds.
The charges were a "tough decision" that will allow it to be "profitable on a smaller scale," Jacobson said.
The U.S. automaker's shares fell about 0.5%.
GM partners with SAIC Motors in China to build Buick, Chevrolet and Cadillac vehicles.
The company's board determined that the non-cash charges were necessary amid "certain restructuring actions" with the joint venture, according to a company filing.
GM has not disclosed details of the restructuring.
Most of the charges will be recorded in the company's fourth-quarter earnings, reducing net income but not adjusted results, a GM spokesperson said.
FACING SIGNIFICANT HEADWINDS
CEO Mary Barra has been transforming GM's operations in China, and told investors in October that by the end of the year, there would be "a significant reduction in dealer inventory and modest improvements in sales and share."
The automaker lost about $350 million in the region in the first three quarters of this year.
In March, Reuters reported that SAIC aimed to cut thousands of jobs, including at its joint venture with GM.
Barra warned in July that the China market was becoming untenable for many corporations who were losing money.
Stiff competition from Chinese manufacturers and a price war have already had visible effects.
Sales at SAIC-GM slumped 59% in the first 11 months of this year to 370,989 units, while local new energy vehicle champion BYD (SZ:002594) sold more than 10 times that number in the same period. The GM venture peaked in 2018, selling an annual 2 million cars.
Some analysts were skeptical that the joint venture can restructure without more cash from GM, and warned that the China market may not be viable for the automaker.
“Headwinds in China remain too great to create meaningful profitability,” Bernstein analysts said in a research note.
Volkswagen (ETR:VOWG_p), overtaken in 2022 by BYD as the best-selling brand in China, is trying to deepen ties with Chinese partners including Xpeng (NYSE:XPEV) Motor and SAIC, for EV technology to offset flagging sales in its biggest market. The German automaker and SAIC agreed to extend their joint venture contract by a decade to 2040.
Japanese carmaker Nissan (OTC:NSANY) Motor is cutting 9,000 jobs and slashing its manufacturing capacity due to slipping sales in China and the U.S.
GM's rival Ford Motor (NYSE:F) is transforming its presence in China to become a vehicle export hub, though some analysts are urging Detroit's automakers to cut their losses and exit the world's largest auto market altogether.