Chinese Trade: GM Gives 51 Percent, Receives One Percent
There may be a deal in the works to return GM’s golden share in the increasingly important joint venture with China’s SAIC. It will be a skewed trade: The joint venture will go back to 50-50. In return, a sales company will be set up, which is majority controlled by SAIC in a 51-49 joint venture. SAIC will be controlling the most important aspect of the car business: The selling of cars.
In 2009, GM sold one percent of the 50-50 partnership.to SAIC for a token sum of $85 million. Officially, this was to allow SAIC to reflect the JV’s earnings on its books. New Chinese accounting rules say that the earnings can only be reflected if there is substantial control of the company. People had scratched their heads back then – if this share is so important, then why was the price so low? In a 10-K filing, GM explained later:
“The sale of the 1% ownership interest to SAIC was predicated on our ability to work with SAIC to obtain a $400 million line of credit from a commercial bank to us… “
Remember, this was 2009, with GM hanging on for dear life. And why is the sales company suddenly a solution? Reuters explains:
“One possible option to show that SAIC is in some form of control would be to incorporate a sales company for Shanghai GM that would be majority-held by SAIC.”
This, however, is another interesting development. The word in China is that foreign joint venture partners are gaining the upper hand. China realizes that it needs a lot of foreign know-how, and that it currently is “big, but weak.” Foreigners are gaining strength on two fronts:
According to Chinese rules, you need to form a joint venture for car manufacturing. Two crucial areas of the business do not need a joint venture: Parts manufacturing and the selling of cars. Foreigners have quietly established fully owned parts manufacturing enterprises in China and are planning to do the same with distribution networks. A Chinese sales company does not need a Chinese joint venture partner, let alone one that has majority control. If that deal pans out, then GM is giving up control of something is could own outright, in exchange for going back to a 50-50 Chinese standoff situation.
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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Why would a 50 percent Chinese owned manufacturer provide cars to a 100 percent foreign owned distributor? I would think the Chinese partner would demand a 50 percent interest in any distributor that the joint venture provides cars to.
Man that chick's Chinese sounds worse than mine. At least she cops to it being Taiwanese mandarin though it really sounds more like Taiwanese-American mandarin, lol.