China Watch : GM and SAIC Motor increase links in China and India

Automotive News Europe, 4th December, 2009

SHANGHAI (Reuters) – General Motors will sell a 1 percent stake in its existing China venture with partner SAIC Motor for about $85 million, giving China’s top carmaker control and allowing it to consolidate the venture’s accounts onto its balance sheet.

GM and SAIC Motor also announced that they will make small cars and commercial vehicles in India, taking their 12-year partnership into one of the world’s fastest-growing auto markets.

“We have had a successful relationship with them for 12 years,” Nick Reilly, the outgoing President of GM’s International Operations, told reporters on a conference call on Friday. “It seems to us very sensible and a big opportunity to broaden that relationship outside China.”

The 50:50 India venture, in which SAIC Motor will invest cash and GM will inject existing Indian assets, aims to sell 225,000 vehicles a year in the next couple of years, Reilly said.

SAIC makes its move

For SAIC Motor gaining control of the China venture and an equal say with GM in India could be a stepping stone to its ambitions of being a global player in an autos market that has suffered one of its deepest downturns in memory.

“India is a test case of SAIC’s ambition for overseas expansion, and it may further expand into Southeast Asia when the time is right,” said Johnny Wong, Auto Analyst at Yuanta in Hong Kong.

The GM-SAIC Motor partnership is one of the most successful tie-ups between a foreign and local automaker in China, helping both companies in a fiercely competitive market where they vie with Volkswagen AG, Toyota Motor Corp. and Ford Motor.

“It seems to me that SAIC’s status in the tie-up is obviously rising,” said Qin Xuwen, an Analyst with Orient Securities. “The tide has started to turn. They are equal partners now.”

GM India said its U.S. parent would collaborate with SAIC Motor to develop and make commercial vehicles and other products both for India and for export, mainly to emerging markets.

“It looks like GM is leveraging all its contacts across the globe to expand in fast-growing markets, and for SAIC it gives them a ready market into the fourth-largest commercial vehicle market,” said Ian Fletcher, London-based Auto Analyst at IHS Global Insight.

The India collaboration, which should be finalized soon, would have access to mini-commercial vehicles and other products from GM’s venture in China, and would vie with local automakers such as Tata Motors Ltd. and Mahindra & Mahindra.

Shortcut to goal

For years, Chinese automakers have been churning out foreign brands through local tie-ups with VW, Toyota and others or have focused their own production on basic and cheap models aimed only at the fast-growing domestic market.

Snapping up assets from distressed auto giants offers them a shortcut to global markets and helps them raise both their technical expertise and their profile.

The deals with SAIC Motor come as GM has opted to retain and turn around its Opel operations in Europe in a restructuring estimated to cost about 3.3 billion euros, reversing a decision to sell a controlling stake in the unit.

GM had a cash hoard of nearly $43 billion at end-September thanks to $50 billion of U.S. Government support that has made the U.S. Treasury a 61 percent owner, but the company has made it a priority to repay debt to U.S. taxpayers quickly, possibly as early as June.

Earlier this week, GM’s CEO Fritz Henderson abruptly resigned after the company’s board decided the automaker needed to push its restructuring faster under new leadership.

On Thursday, SAIC Motor suspended trading in its shares on the Shanghai market pending an announcement on what it called a “major asset restructuring.”

SAIC Motor President Chen Hong has previously said the company was very interested in entering the Indian market and listed it as second in terms of potential after China.

There is very little Chinese presence in the Indian auto sector. There are a number of ventures between Chinese and Indian firms making electric two-wheelers, but these are tiny.

Bilateral trade between India and China has grown in recent years but New Delhi, worried about security risks, has taken steps to regulate the entry of Chinese investments and workers.

Key market

China’s auto market has been a major bright spot this year amid a steeper-than-expected global industry downturn, thanks to Beijing’s stimulus measures, which have significantly bolstered consumer confidence. GM has been one of the biggest beneficiaries.

January-October sales at GM’s Shanghai venture with SAIC Motor rose 46.5 percent to 548,707 vehicles. The decade-old flagship venture with SAIC Motor sells passenger cars under the Cadillac, Buick and Chevrolet brands.

GM in its global restructuring opted to retain Buick due to its popularity in China while it was closing or selling other units such as Saab, Saturn and Hummer. The China results are in contrast to GM’s home market, where sales fell 32 percent through November to about 1.9 million vehicles.

In a sign that Beijing Automotive Industry Holding Corp (BAIC) might still be keen to buy GM’s Saab unit, Bank of China said it provided BAIC with a 20 billion yuan ($2.9 billion) line of credit. The Beijing-based carmaker has said it might still be interested in Saab.

GM and SAIC Motor have many other joint ventures in China as well, including an automotive finance firm modeled after GMAC and a three-way commercial vehicle tie-up with Lizhou Wuling Automobile. GM’s joint ventures in China sold a combined 1.46 million units through the first 10 months of 2009.

[Source: Automotive News Europe/Reuters]

Clive Goldthorp

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