At the beginning of December, General Motors submitted a securities filing stating that it plans to record non temporary impairments of $2.6 billion to $2.9 billion for its joint ventures in China, in addition to an additional $2.7 billion in equity losses due to the implementation of the restructuring plan, totaling over $5 billion.
This restructuring involves the closure of factories in China. On December 9th, General Motors China responded to a reporter from Beike Finance of the New Beijing News, stating that "China business is a high-quality asset for our present and future." The company is taking measures to reduce inventory, produce on demand, protect the price system, and lower fixed costs.
Despite General Motors' firm intention to cooperate with SAIC Group, how to get out of the quagmire of losses remains a challenge.
Plan to restructure business in China
The documents recently submitted by General Motors have caused a stir in the industry. The document shows that General Motors holds equity in SAIC General Motors Co., Ltd., a joint venture between General Motors and SAIC Group, with each holding 50% of the shares. General Motors also holds equity in SAIC General Motors Financial Company. General Motors conducts its automotive business in China through various other joint ventures with General Motors.
The document states that on December 2nd, the audit committee of the company's board of directors concluded that the significant loss in investment value of General Motors in certain Chinese joint ventures is not temporary, and therefore requires a significant impairment of the company's equity in the extraordinary general meeting of shareholders. In response to market challenges and competitive conditions, General Motors is about to take certain restructuring actions. The company is evaluating the impact of SGM's planned restructuring actions and recent efforts to stabilize market share and focus on profitability, and expects General Motors' equity in its Chinese joint venture to experience a non temporary impairment of $2.6 billion to $2.9 billion in the three months ending December 31, 2024.
In addition, General Motors will also recognize approximately $2.7 billion in additional equity losses resulting from the implementation of the SGM restructuring plan, including impairment charges related to factory closures and portfolio optimization that will be recognized by Chinese joint ventures.
Regarding the restructuring of its business in China, General Motors China told a reporter from Beike Finance of the New Beijing News, "China's business is a high-quality asset for our present and future. Our cooperation and communication with our joint venture partner SAIC Group are closer than ever to achieve profitability and sustainable development. To achieve long-term development goals, we are taking measures to reduce inventory, produce on demand, protect the price system, and lower fixed costs
In addition, General Motors China stated that many business departments are currently continuing to recruit. "Based on the adjustment of our business focus, our personnel flow is within a reasonable range, and our business focus is on boosting sales, reducing costs and increasing efficiency, ensuring long-term and sustainable profitability in the Chinese market
In the first three quarters, the business in China incurred a loss of 347 million yuan
In fact, General Motors' choice had already shown signs in the third quarter report.
General Motors' third quarter 2024 financial report released on October 22 showed that the company achieved operating revenue of $48.8 billion, a year-on-year increase of 10%, net profit of $3.1 billion, and adjusted pre tax profit of $4.1 billion. However, General Motors incurred a loss of $137 million in its business in China in the third quarter, compared to a loss of $347 million in the first three quarters and a profit of $353 million in 2023.
At the same time, General Motors' market share in China is also declining. As of the first nine months of this year, General Motors' total car sales in China were 1.2 million units, with a market share of 6.8%, a year-on-year decrease of 1.8 percentage points.
Regarding the reasons, General Motors analyzed that in the "price war" between new car manufacturers and established competitors, there is a severe overcapacity in the market, leading to a decline in wholesale volume for General Motors.
Chinese domestic car companies are expanding their market share and putting production above profit, with the ability to produce cars at much lower costs than foreign car manufacturers. These factors are affecting the sales ability of joint ventures and our possibility of obtaining equity income, "General Motors mentioned in its financial report.
In view of this, General Motors stated that it is working closely with its joint venture partners to restructure its business in China and expects to announce its latest business plan in the fourth quarter. General Motors believes that there may be significant value losses in its equity in certain Chinese joint ventures. If it is concluded that the value loss is not temporary, we will be required to record a significant non cash impairment expense in the fourth quarter of this year
General Motors and SAIC commit to unchanged cooperation
SAIC Group is also facing performance challenges from its affiliated companies. According to SAIC Group's semi annual report, in the first half of this year, SAIC Group's net profit attributable to its parent company was 6.628 billion yuan, while SAIC General Motors incurred a loss of 2.275 billion yuan.
Both General Motors and SAIC Group have expressed unwavering commitment to their future partnership. General Motors told a reporter from Beike Finance of the New Beijing News, "Our partnership with SAIC Group and our commitment to promoting the long-term development of the joint venture have not changed
While firmly cooperating, how to overcome losses is a common challenge that both parties must face.
Lu Xiao, General Manager of SAIC General Motors, mentioned in a media interview that the continuous decline in sales is the main reason for the industry's doubts about SAIC General Motors' prospects. Since the beginning of this year, SAIC General Motors has taken a series of rapid and effective measures to change the production and sales relationship model, strengthen business policy support for distributors, aiming to alleviate channel pressure and achieve a balance between quantity and profit.
Lu Xiao publicly stated that in the short term, "destocking" and "reducing the burden on dealers" are the core tasks of SAIC General Motors.
How to support dealers is one of the issues facing General Motors in China. On December 9th, a reporter from Beike Finance of the New Beijing News noticed on the recruitment website Liepin that General Motors is currently recruiting a large number of personnel, and these recruitment positions also reflect to some extent the company's future development direction.
For example, the Business Commercial and Process Manager recruited by General Motors in China can earn a monthly salary of 35000 to 40000 yuan, with an annual salary of 15 yuan. The main responsibility of this position is to "design and improve the agent rebate system, ensure the fairness and transparency of rebate policies, and motivate agent sales performance".
At the same time, SAIC General Motors has also started offering discounted prices, such as the launch of the all-new Buick Enclave Plus, which starts at 169900 yuan for a limited time.
Under multiple measures, in November of this year, SAIC-GM's terminal sales reached a new high of 66797 vehicles (including exports), achieving growth for five consecutive months. In the first 11 months of this year, SAIC General Motors' cumulative terminal sales reached 600000 vehicles (including exports). The main driving force behind the increase in sales of SAIC General Motors comes from the Buick brand, with the Envision Plus selling 12807 units in November, a month on month increase of 57.1% and a year-on-year surge of 110.6%.
As the penetration rate of new energy in the Chinese automotive market continues to increase and intelligence becomes the trend, can joint venture brands keep up with the market pace? Bai Wenxi, Vice Chairman of the China Enterprise Capital Alliance, analyzed that the R&D process of joint venture brand models under multinational car companies is relatively complex, and the response speed to strategic adjustments in the face of market competition is slow, which may make General Motors one step slower in market competition. In a constantly iterating environment, taking one step slower may require more effort to regain market share.