Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
General Motors has taken a more than $5bn charge against its businesses in China, laying bare the company’s declining fortunes there as western carmakers are undercut by cheaper domestic competitors.
On Wednesday, GM said that there was a “material loss in value of our investments in certain of the China joint ventures . . . in light of the finalisation of a new business forecast and certain restructuring actions”.
The company said it would write down the value of its interest in its Chinese joint ventures by as much as $2.9bn, and record an additional $2.7bn in restructuring charges. GM plans to close plants, axe workers and reduce the number of models it sells in China.
GM shares were down 1.4 per cent in morning trading on Wednesday, to $52.92, even as broader equity markets rose.
GM, along with Germany’s Volkswagen, is one of the largest western carmakers operating in China, but it has struggled to maintain its market share as Chinese rivals churn out less expensive, high-tech electric vehicles.
GM runs a series of joint ventures in China alongside SAIC Motor Corp and China FAW Group. The decline in market share at GM’s joint ventures has been greater than most carmakers, going from approximately 14 per cent share in 2019 to roughly 6 per cent this year.
The company has posted losses in China each quarter this year and is expected to do so again in the fourth quarter. GM spokesman said the company expected results to improve in 2025.
Analyst James Picariello of BNP Paribas Exane called the restructuring “drastic”, but said it was necessary in order to compete against Chinese carmakers such as BYD.
GM is not the only international carmaker to struggle: problems in China have also recently led to steep falls in quarterly profit for Toyota, Honda and BMW. Last month, VW also announced that it had sold its plant in Xinjiang following scrutiny over its presence in a region where Beijing has been accused of widespread human rights abuse.
In October, GM’s chief executive Mary Barra told investors that the company’s restructuring measures would start to bear fruit by the end of this year.
“In China, you’ll begin to see evidence of a turnaround yet this year, with a significant reduction in dealer inventory and modest improvements in sales and share,” she said.
But analysts say western carmakers are unlikely to regain the profits and market share they once enjoyed in China, forcing many to refocus their efforts on the US.
“One should not expect a big turnaround story for Western OEMs [original equipment manufacturers] in the Chinese market. That negative trend is irreversible in our view,” said UBS analyst Patrick Hummel.
Additional reporting by Oliver Ralph in London
Read the full article here