General Motors takes $5bn charge against operation in China

General Motors has taken a $5 billion charge against its operations in China in the latest sign of the intensifying local competition facing western car makers in the world’s second-largest economy.
Once its largest market, profits in China have gone into reverse at GM. In a filing with the US Securities and Exchange Commission, the Detroit-based company said it expected to write down the value of its interest in its Chinese joint venture by as much as $2.9 billion, and book an additional $2.7 billion in restructuring charges.
GM, founded in 1908, partners with SAIC Motor in China and builds Buick, Chevrolet and Cadillac vehicles.
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Having announced a restructuring of its Chinese operation in July, the board’s audit committee has concluded that the charges are necessary “in light of the finalisation of a new business forecast and certain restructuring actions that SGM [its joint venture with SAIC] is finalising that are expected to be taken to address market challenges and competitive conditions”. Part of the impairment includes “plant closures and portfolio optimisation”.
General Motors fell to a loss in China in the first nine months of this year after years of profits. In October, Mary Barra, GM’s chief executive, also said there would soon be “a significant reduction in dealer inventory and modest improvements in sales and share”.
Multinational car makers, also including Volkswagen, Nissan and Tesla, have come under sales pressure from Chinese-made cars, particularly the electric vehicle company BYD, and a price war.
Supported by state subsidies and the Beijing government’s long-term strategic focus on leading the electric vehicles market, China has become the world’s biggest producer. More than half of new cars sold in the country are EVs or plug-in hybrids, and prices are getting closer to those of petrol vehicles.
Nissan last month announced plans to cut 9,000 jobs around the world as it cuts production and grapples with a drop in sales in China and the US.
The shockwaves sweeping through the global car industry were underlined last week when Stellantis announced plans to consolidate its UK Vauxhall operations in Ellesmere Port in Cheshire, and to close its van-making plant in Luton, putting up to 1,100 jobs at risk.
Carlos Tavares, Stellantis’s chief executive, abruptly resigned on Sunday following disagreements with the board over the strategy of the group — whose brands also include the Peugeot, Fiat and Jeep brands — and a drop in profits.
Shares in GM fell on news of the China write-downs but by the close in New York on Wednesday, they had pared some of the losses and were 0.6 per cent lower at $53.36, and still 48 per cent higher than at the start of the year.
Barra has said GM remains committed to the China, but it has retreated from other overseas markets, including Europe, India and Australia, and become more reliant on its home market of North America.
At its third-quarter results in October, GM raised its full-year profit guidance, helped by resilient demand for trucks and SUVs. But it remained loss-making in China during the period, following a loss of $210 million at its joint venture with SAIC in the first half of the year.
Sales in its China venture have fallen from a peak of about two million cars in 2018 to 371,000 units in the first 11 months of this year.
Most of the charges in China will be recorded in the company’s fourth-quarter earnings, GM said.