General Motors is set to take a significant hit in the fourth quarter of this year due to the underperformance of its Chinese joint ventures. The Detroit automaker announced that it will be writing down assets and incurring a restructuring charge exceeding $5 billion.
As per a regulatory filing, GM will be reducing the value of its equity stake in the ventures by $2.6 billion to $2.9 billion. Additionally, the company will be taking $2.7 billion in restructuring charges, with the majority of it expected in the fourth quarter.
While these noncash charges will impact the company's net income, they are not anticipated to affect adjusted pretax earnings, according to GM's filing with the U.S. Securities and Exchange Commission.
GM has been a 50% owner of its joint venture with SAIC General Motors Corp. for several years, along with other joint ventures, including a finance arm. These ventures, which were once a reliable source of equity income, have recently transitioned to losses.
Despite the challenges faced in China, GM is projecting a full-year net profit ranging from $10.4 billion to $11.1 billion. The ventures reported a loss of $347 million from January to September, a stark contrast to the $353 million profit in the same period last year.
China's automotive market has become increasingly competitive for foreign automakers, with domestic companies like BYD enhancing quality and reducing costs, supported by government subsidies. GM's main joint venture with SAIC, SGM, is undergoing restructuring efforts to address market challenges and enhance competitiveness.
During GM's third-quarter earnings call, the company's CFO mentioned that while restructuring in China had not yet commenced, sales were on the rise and inventory levels were decreasing. CEO Mary Barra acknowledged the complexities of the Chinese market, noting that some domestic brands prioritize production over profitability.
GM aims to navigate the challenging Chinese market by focusing on a new pickup truck and importing premium vehicles to generate revenue. Following the announcement, General Motors Co. shares experienced a 3% decline before the market opened on Wednesday.
