The Truth About Cars » Shanghai GM http://www.thetruthaboutcars.com The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Tue, 15 Jul 2014 20:01:03 +0000 en-US hourly 1 http://wordpress.org/?v=3.9.1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars editors@ttac.com editors@ttac.com (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » Shanghai GM http://www.thetruthaboutcars.com/wp-content/themes/ttac-theme/images/logo.gif http://www.thetruthaboutcars.com GM Denies Car Exports From China, Grows Nose http://www.thetruthaboutcars.com/2013/05/gm-denies-car-exports-from-china-grows-nose/ http://www.thetruthaboutcars.com/2013/05/gm-denies-car-exports-from-china-grows-nose/#comments Thu, 23 May 2013 18:14:11 +0000 http://www.thetruthaboutcars.com/?p=489398 I can't tell a lie - Picture courtesy Pandodaily.com

When Autoblog was invited to one of those hurried and harried press conferences at the Shanghai Auto Show, and asked GM China president Bob Socia about car exports from China to America, they were told:

“It could very well happen. It could very well happen. You know, I’m not sharing any plans with you, but we try to keep open as to what makes sense … We’re open to be doing that. There’s no reason why we can’t be exporting to the States.”

We gave the matter short shrift. We know China-made Honda Fits are in Canada and elsewhere without giving people fits. Also, we have been following GM China’s export activities for many years. GM started exporting the Sail from China in 2010, making it “the first time a world-class automaker will export from China a model it developed in the country,” as the Nikkei said. Actually, it was GM that got China’s heretofore sputtering auto export machine going.

For some folks, like Chris Butler at the Franklin Center’s Watchdog site for Tennessee, GM’s exports from China were new. Butler called GM and asked whether China will become an export base for the General: He reached spokesman Greg Martin, who said:


“There will be no exports of these cars built in China. Cars that are built in China are sold in China.”

When asked about Ed Niedermeyer’s Wall Street Journal op-ed that said that “GM is targeting 100,000-plus exports of Chinese-made cars this year” Martin backpedaled, saying:

“Well, some of those vehicles may go to Indonesia, Taiwan or Korea. I don’t know if it’s 100,000 plus, but those places I just cited are also bases for smaller Asian markets over there for us.”

The spokesman did not know what he was talking about. He was wrong about 1) no exports of cars built in China, and 2) the Chinese exports only going to Asian markets. As a matter of fact, GM has been exporting from China for a decade:

2002: Shanghai GM to Export Engines to Canada:”The export of engines to North America represents a milestone for China’s most advanced automaking facility.”

2006: GM Bets China Will Become Crucial Export Base:GM sends engines made by one of its joint ventures with state-controlled Shanghai Automotive Industry Corp. to its plants in Canada and the U.S. The partners have also exported small numbers of Chevrolets, designed by a GM affiliate in South Korea, from China to Russia and Chile.”

2010: Shanghai-GM: Chevrolet Sails to Chile and Libya: “The passenger car joint venture of SAIC and General Motors said that it has received initial order for close to 10,000 Chevy Sails from countries outside China, mainly Chile and Libya.”

2012 (GM Annual Report): “Export sales from China reached 76,000 units in 2012 and are expected to reach 100,000 units in 2013

2013: General Motors accelerates China push: …”[Bob Socia, who runs GM of China] said …GM plans to boost its exports from China to 300,000 by 2015. This year the company expects to export between 100,000 to 130,000 vehicles.”

2013: “Through its China-based business, GM exports vehicles such as the Chevrolet Sail to other markets, including South America and the Middle East.

2013: “Shanghai GM doubles exports of Chevy New Sail … Its main export markets include Chile, Peru, Algeria, Ecuador, Colombia and India.”

GM has been exporting from China for more than 10 years. It is shipping cars from China not just to smaller countries in China’s periphery, as Martin said. The cars go to South America, Africa and the Middle East. Cars that go there from China don’t go there from America. GM wasn’t bailed out to create jobs in China. It was bailed out to create jobs in America. It wasn’t bailed out so that its spokesmen can lie to the taxpayers that were forced to fund the bailout.

 

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Companies! Cheap! For You, Special Price: GM’s Hong Kong Dealings http://www.thetruthaboutcars.com/2012/10/companies-cheap-for-you-special-price-gms-hong-kong-dealings/ http://www.thetruthaboutcars.com/2012/10/companies-cheap-for-you-special-price-gms-hong-kong-dealings/#comments Mon, 22 Oct 2012 13:14:06 +0000 http://www.thetruthaboutcars.com/?p=464477

Hong Kong, and I speak from experience, is a great place to incorporate, to save taxes, and to throw a cloak of secrecy over financial operations which otherwise would be out in the open. In the case of GM, it is also a great place to save their Korean behinds. In December 2009, GM sold a 1% stake in its Shanghai-GM (SGM) joint venture to the Hong Kong part of its Chinese partner SAIC for the paltry sum of $85m. GM also put its India business into a Hong Kong based joint venture (HKJV). GM provided the India business, SAIC provided cash. As it turned out later, unearthed in Ed Niedermeyer’s seminal oeuvre about the mystery golden share, SAIC also underwrote a $400 million loan. In its darkest hour at the end of 2009, GM was kept afloat by the Chinese. Now, history seems to repeat itself in some convoluted way.

Also at the same time in 2009, the Korean Development Bank was trying to gain control of GM-Daewoo. That company, GM’s main source of low-cost, fuel-efficient car development, was in urgent need of cash which GM did not have. GM-DAT was kept in the GM fold after a $413m cash injection into its Korean subsidiary, only weeks before the Hong Kong deal. The money came from China via Hong Kong.

Three years later, GM is sitting on a taxpayer-enhanced $33 billion cash pile, and it seems to be time and opportune to use some to unwind some Asian positions. Again, the hub is Hong Kong. Last week, it became known that GM buys back most of the shares in is (Hong Kong held) India business for the again paltry sum of $125 million, leaving partner SAIC with a token 7 percent. On paper, this was a great deal. When GM put its India business into the HKJV, the business was, according to SEC filings, valued at $200 million. Now, most of it is coming back for $125 million. Not that SAIC would receive that money. GM did a capital raise, SAIC elected not to match it, and was diluted to 7 percent. It is surprising that SAIC would let control slip so easily. India is the world’s next growth market, with a capacity rivaling that of China. The Chinese car industry was effectively locked out of India, SAIC snuck in on GM’s coat tails. And now we are supposed to believe that SAIC walked away from that prize, after it had put in anywhere between $300 and $500 million in cash? Highly un-Chinese.

Be it $200 million or $125 million, the amounts are awfully low for Indian car plants with a capacity of more than 300,000 units per year. As a comparison: Tesla, a company that had nothing more than big ideas and a few prototypes of EVs of dubious value, could raise $226 million at the IPO. As another comparison: BMW budgets $260 million for a pocket-sized 30,000 unit plant in Brazil that does nothing more than assembling kits from Germany. These Indian numbers simply do not compute.

Remember Korea? As if on cue, Korea pops up after some strange Hong Kong transactions are settled. Over the weekend, Reuters reported that GM made an “informal offer” to the Korea Development Bank to buy back the 17 percent the bank holds in GM Korea. GM currently owns 77 percent. A price was not released.

How does this all fit together? We have no idea. However, we are sure it does.

And remember the famous golden share? In April, it was announced that GM would get the 1 percent share in its Chinese joint venture back, for a huge price: GM and SAIC established a sales company, SGMS. SAIC received a 51 percent majority control of the sales company. So far the theory. The reality, filed in the most recent 10-Q to the SEC, looks different. In the document, GM is listed as a 49 percent owner of SGMS. And it is still listed as a 49 percent owner of Shanghai General Motors (SGM). According to the SEC filing, SAIC has 51% both in the new sales company and the old joint venture.

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Unlocking The Secrets Of GM’s Golden China Share http://www.thetruthaboutcars.com/2011/08/inside-gms-china-golden-china-share/ http://www.thetruthaboutcars.com/2011/08/inside-gms-china-golden-china-share/#comments Wed, 10 Aug 2011 21:26:34 +0000 http://www.thetruthaboutcars.com/?p=406604

Having been asked by a certain newspaper to review the new book “American Wheels, Chinese Roads: The Story of General Motors in China [more info on that review coming soon], I’ve been spending my quiet moments over the last week or so looking into GM’s Chinese operations. The book’s author, Michael Dunne, documents GM’s rise in the Middle Kingdom from the perspective of a well-informed outsider, revealing just how delicate one of GM’s best-performing global maneuvers really was. But after following the rise of GM in China, Dunne notes the December 2009 announcement that GM was selling a 1% stake in its Shanghai-GM (SGM) joint venture to its Chinese partner SAIC (for the paltry sum of $85m no less), arguing that GM had made a dangerous leap of necessity. This sale, implies Dunne, could well have been the tipping point that leads to GM being surpassed by its erstwhile junior (in size, technology and global reach) partner, SAIC. And, in the words of “one GM executive who used to work in China,” GM would need

good luck getting that back.

But, back in June, GM CEO Dan Akerson told GM’s shareholder meeting that he wants to do just that, saying

We have an option to buy that 1 percent. It’s our intention to exercise that.

With Akerson’s announcement, the mystery of GM’s “golden share” sale deepened. At first the question was simply “why would GM sell its 1%?” but now there’s another mystery: why would GM want it back? After some digging, it seems that we are now able to resolve the first mystery, and report why GM sold its one percent. But the whole deal is still surrounded by several layers of mystery which conceal whether GM will in fact be able to regain its 50-50 partnership in SGM, why it would want to and whether its gambit was ultimately worthwhile. And given how important China has been (and continues to be) to GM’s global business, this is definitely an issue that GM- and industry-watchers will want to better understand.

First of all, it’s important that we understand how the deal was announced, as it caused a good deal of head-scratching here at TTAC and around the auto industry. As the WSJ [sub] reported at the time, GM played down any major implications of its apparent surrender of an equal partnership in one of its most important markets:

“In actual fact we operate that way already, so that’s not a significant change,” said Nick Reilly, who stepped aside as head of GM’s international operations Friday to run its European business.

GM said the transfer was necessary to help SAIC consolidate earnings from the Shanghai GM joint venture, having been previously barred from doing so as a 50:50 partner under local financial regulations.

The NYT added

the 51 percent stake would give S.A.I.C. the right to approve the venture’s budget, future plans and senior management.

But, as Dunne and others have pointed out, no other Chinese joint ventures have made this move, suggesting that SAIC’s desire to consolidate earnings were not the only reason for the deal. Further confusing the situation was the tiny purchase price: by selling its controlling 1% for a mere $85m, it seemed as if GM were giving away the keys to the Middle Kingdom for chump change. And Akerson’s revelation that GM has an option to reclaim the 1% confused all of this even further: after all, with SAIC insisting that it retain its consolidated earnings in the case of a return to the 50-50 partnership, it would seem that the sale part was unnecessary to that goal, which could have been accomplished with a (relatively) simple contract. What, I’ve been wondering for days now, was really going on with this deal? How to square all of this seemingly contradictory information? Did GM make a worthwhile gamble, or did it foolishly fumble away a key market?

After much digging and many emails to GM, the situation is finally starting to make a little sense. And in the process we got our hands on some information that has yet to be published in the mainstream media (to the best of my knowledge). GM confirms that it does in fact have a call option for the controlling 1% stake, but refuses to give any details about how it might be exercised or what its terms are. The only specific information about the deal comes 196 pages into a 534-page 10-K filing [PDF here] covering calendar year 2010. That filing reveals that, although GM does have the option to buy back the 1% stake, it’s not in the driver’s seat to make that happen…

 We also received a call option to repurchase the 1% which is contingently exercisable based on events which we do not unilaterally control.

Of course GM won’t disclose what these events are (although Akerson does hint that SAIC’s restructuring is somehow an issue), but the admission that the company doesn’t “unilaterally control” the events required to buy it back keeps the shadow of doubt over Akerson’s stated “intention” to return to a 50-50 partnership. Still, with it’s back against the wall, it’s still possible that GM could have signed a deal that might still keep it a junior partner in SGM… had there been enough cash on the table. $85m was clearly not enough to make such a deal worthwhile, but according to the 10-K filing we’ve obtained, there was more in the deal for GM than that.

In February 2010 we sold a 1% ownership interest in SGM to SAIC-HK, reducing our ownership interest to 49%. 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… As part of the loan arrangement SAIC provided a commitment whereby, in the event of default, SAIC will purchase the ownership interest in SGM that we pledged as collateral for the loan. We recorded an insignificant gain on this transaction in the year ended December 31, 2010.

So, the truth comes out! This arrangement has been hinted at before, but until we obtained the relevant 10-K, the exact amount had never before been reported. So, between the $85m price and the $400m loan, that 1% stake was worth closer to half a billion dollars than the $85m initially reported. That means that, on the one hand GM got a reasonably fair price for the controlling stake in SGM, but on the other hand, as Bertel noted

If Akerson wants it back for whatever unfathomable reason, then it will cost him.

Without knowing exactly what GM got for its 1%, Dunne argues that the deal was “the end of the beginning” for GM’s successful Chinese efforts. And though GM’s ability to regain a 50-50 partnership is still very much in question based on what little we know about the call option’s details, at least GM got significant short-term help for the gambit. And it’s probably no coincidence that GM was able to keep GM-Daewoo (GM-DAT) in the corporate fold when, just weeks before the SAIC share sale was announced, it injected$413m into its Korean subsidiary. At the time, the Korean Development Bank was trying to wrest control of GM-DAT, which would have left GM without its main source of low-cost, fuel-efficient car development. Presumably keeping Daewoo was worth whatever risk now stands between GM and its call option… just as keeping Opel’s development capacity was worth billions in restructuring costs (probably not coincidentally, GM insisted that the Daewoo bailout cash “came from overseas operations”).

In short, GM’s gambit was a far better business move than we initially thought… although it’s also clear that the reasoning it gave at the time was disingenuous at best. But, thanks to Akerson’s “intention” to exercise the option, we also know that GM is not as comfortable as the junior partner in SGM as it initially made it seem, and the RenCen is obviously anxious to reel the decision back in. But what will the buyback end up costing? What “events” need to happen to make the buyback possible? And, since reclaiming the 1% would neither help GM financially or give it more functional control over its JV (as far as we can tell), why is it so intent on buying back that one (presumably) extremely expensive share? As with so many examples in China-US business relations, solving one mystery tends to lead only to more mysteries…

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