GM Sells Its Future To China
And so it happened. Xinhua (translation via Gasgoo) has put on the wire that General Mayhem will “transfer half of its Indian operations to SAIC Motor by setting up a 50-50 joint venture there with the Chinese partner.” As expected, “GM and SAIC have also reached an agreement to transfer 1 percent of GM’s stake in their 50-50 Shanghai car venture to SAIC.” With that little percent, SAIC has a controlling majority of the Chinese joint venture. What for?
In return, GM gets what Reuters calls “a timely cash injection.” As suspected by TTAC commentator Pete Moran, the money is most likely being used to fund Opel. GM China would have lost big if Opel would have gone to Magna and the Russians. Many Chinese Buicks are rebadged Opels (Regal/Insignia, Excelle/Astra.)
In India, GM needs help. And SAIC needs help. GM has production capacity of 225,000 units in India. GM sold 65,700 units last year. which works out to a suicidal capacity utilization in India of below 30 percent. SAIC in turn receives what they yearned for: Access to the Indian market. India is paranoid about China invading their country, be it with tanks or with low priced cars. India has so far done everything to keep the Chinese out. GM is giving SAIC a backdoor into India, and 50 percent of their share in the world’s second fastest-growing auto market.
Reuters quotes Qin Xuwen, an analyst with Orient Securities who said “it seems to me that SAIC’s status in the tie-up is obviously rising. The tide has started to turn. They are equal partners now.”
That is the understatement of the day. By giving up control in the world’s biggest and fastest growing market, and by selling half of their share in the world’s second fastest-growing auto market, GM is selling off its future for Chinese cash. They must need the money badly.
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