China, once General Motors’ (GM) largest and most important market, has become its biggest problem. The company has announced that it will 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. The automaker’s shares fell 2.7% before the bell.
GM partners with SAIC Motors to build Buick, Chevrolet, and Cadillac vehicles, but the joint venture has been struggling with losses. The company’s board of directors determined that the non-cash charges were necessary due to the finalization of a new business forecast and certain restructuring actions. Most of the charges will be recorded in the company’s fourth-quarter earnings, reducing net income but not adjusted results.
The move comes as the Chinese market continues to present challenges for GM, including stiff competition from domestic manufacturers and a price war. The company has been losing money in the region, with a loss of about $350 million in the first three quarters of this year. CEO Mary Barra has been transforming GM’s operations in China, but the effort has yet to yield significant results.
The Chinese market has become increasingly difficult for many corporations, with even domestically-owned companies struggling to make a profit. Barra has warned that the market is unsustainable for many companies, citing the steep competition and price wars. As a result, some analysts are urging Detroit’s automakers to cut their losses and exit the market altogether.
Other companies, such as Volkswagen and Nissan, are also cutting their losses in China. Volkswagen, for example, is doubling down on efforts to deepen its ties with Chinese partners to counter its flagging sales in the region, while Nissan is cutting 9,000 jobs and significantly reducing its manufacturing capacity.Ford, on the other hand, is transforming its presence in China into a vehicle export hub.