One Percent Of GM China Worth $85m

Edward Niedermeyer
by Edward Niedermeyer

Fresh details on GM’s Asian wranglings are coming in, and it seems that SAIC paid The General a mere $85m for the one percent needed to control the joint venture. GM’s Nick Reilly tells the New York Times:

the 51 percent stake would give S.A.I.C. the right to approve the venture’s budget, future plans and senior management. But the venture has a cooperative spirit in which S.A.I.C. has already been able to do so… S.A.I.C. wanted to have a majority stake to consolidate the venture in its financial reporting

Which is about as credible as the conclusion that the Shanghai and India deals are going to provide GM International with a meaningful amount of cash with which to rescue its European and Korean divisions. As it turns out, the Indian deal isn’t going to translate into free cash for GM. GM and SAIC will set up a joint Hong Kong-based investment company, which GM will give its Indian operations and SAIC will fund with $300-$530m, bringing its overall value to $650m.

Reilly explains the value of the India venture thusly to the WSJ:

SAIC’s participation helps GM “defray or share large investment” required for the India push and help the partners achieve results faster, Mr. Reilly said in a conference call with reporters. It also allows GM to market more products in India that had not been “envisaged in our GM-only plan,” particularly ultracheap micro minivans and buses that GM makes with two Chinese partners.

But here’s the rub, as explained by Reilly:

The long-term goal of the Hong Kong investment company will be to expand into other emerging markets. But the initial management structure will be in India, while any expansion into other emerging markets would be managed from G.M.’s Asian headquarters in Shanghai

Though this partnership will not be without its value, the idea that this sale will actually help GM International’s cash position is suspect at best. The $85m for the one percent of SAIC is clear cash, but it doesn’t begin to scratch $413m recently spent on Daewoo’s share offering, let alone the estimated $5b needed to restructure Opel.

So what is the real payoff for GM? Possibly a larger stake in GM-Wuling, although Reilly says “we don’t have anything to announce on that, but SAIC has been very supportive in discussions around that.” The only thing looking like a real benefit from this deal is only hinted at by Reilly:

GM also has been “able to achieve some funding for other activities [in China] from the Chinese banking sector, which would have been difficult to do on our own,”

Edward Niedermeyer
Edward Niedermeyer

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  • Rusted Source Rusted Source on Dec 04, 2009
    Where’s the surprise knowing it’s on a timer? I was thinking more along the lines of a jack-in-the-box kind of thing - only the government knows when that timer goes off, but the rug pulling happens suddenly all the same.
  • PeteMoran PeteMoran on Dec 04, 2009

    Good God, what a mess.

  • AZFelix Hilux technical, preferably with a swivel mount.
  • ToolGuy This is the kind of thing you get when you give people faster internet.
  • ToolGuy North America is already the greatest country on the planet, and I have learned to be careful about what I wish for in terms of making changes. I mean, if Greenland wants to buy JDM vehicles, isn't that for the Danes to decide?
  • ToolGuy Once again my home did not catch on fire and my fire extinguisher(s) stayed in the closet, unused. I guess I threw my money away on fire extinguishers.(And by fire extinguishers I mean nuclear missiles.)
  • Carson D The UAW has succeeded in organizing a US VW plant before. There's a reason they don't teach history in the schools any longer. People wouldn't make the same mistakes.
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