GM Gets A Deal In China: 10% Of Wuling For $51m

GM appears to be sick of the constant needling it receives about their Wuling joint venture in China. Here is a company that produces half of the 2 million cars GM proudly announced as theirs in China, and GM owns only 34 percent. (The 37 percent that had been bandied about apparently were also exaggerated.) 50.1 percent are owned by SAIC, the rest by Wuling. Contractually, GM is entitled to pull the wool over the heads of the world and OICA, and count the millions of diminutive Wulings as theirs. Now, GM is taking steps to redeem themselves. Or to redeem some of the IPO take. But just a little.

The Wall Street Journal says that GM plans to increase its stake in the Wuling joint venture to a breathtaking 44 percent. SAIC would remain in the driver’s seat and keep 50.1 percent. Wuling will hold the bag and 5.9 percent of the stock.

GM says this is “part of efforts to integrate the Chinese operation more into the global operation.” Well, after the production numbers had been integrated for years, it’s time to bring the rest more into the fold.

In an updated IPO prospectus, GM says it has entered into an agreement to purchase an additional 10 percent interest in SAIC GM Wuling Automobile Co. for $51 million in cash from a third joint-venture partner, Wuling Group. GM said it also agreed to provide technical services to Wuling Group through 2013. The transaction is subject to regulatory approval in China.

So GM got 10 percent of a company that builds more than a million cars a year for a pittance of $51m? That’s less than the MSRP of a Gulfstream V. There are still bargains to be had in China. And most likely some customary dealings under the table. Let’s see what those “technical services” will be.

GM needs more Wuling for two real reasons:

• The cheap boxes are selling like hotcakes in China, especially in the rural areas. Although recently, their growth has been lagging the market.

• GM needs them for its joint foray into India (together with SAIC).

According to the WSJ, “most of GM’s product offerings, from gas-guzzling big pickup trucks to subcompacts, are generally too pricey for buyers looking for low-cost, no-frills cars in emerging markets. Boxy Wuling microcars, priced around $4,000, are more suitable for India and other similar markets.”

GM’s future in international growth markets hinges on a company in Liuzhou (ever heard of it?) and a brand popular amongst poor farmers.