SAIC Buys 1% Of GM, Gets Keys To World Markets Thrown In
Observers who followed China’s SAIC coveting of shares in the upcoming GM IPO (only 3 days to go!), and who hoped/feared that SAIC would buy a big chunk of GM, will be disappointed/relieved to hear that SAIC is content with a more or less symbolical 1 percent share in the General.
Reuters has it on good authority (“four people familiar with the matter”) that SAIC and GM have reached an agreement in principle that cements the 1 percent deal. The deal is contingent on Chinese government approval, but this is expected to be fast tracked and should happen today before the U.S. even gets up.
So the big Chinese buy-in is just a lot of hot air? Wait until you hear what SAIC received as a deal sweetener.
As part of the deal, SAIC will gain access to GM’s sales networks outside of China, including Europe, Reuters heard from one of its sources. So SAIC drops around $500m (that’s what 1 percent would cost at the expected valuation) on GM, receives a supposedly hot, and vastly undervalued stock that will pop into the stratosphere by the end of the week, and they get GM’s worldwide dealer channel thrown in?
There’s probably more to it. “Access to GM’s sales networks outside of China” can mean anything, from selling Made-in-China Chevy Sails in South America and elsewhere ( already happening), to selling SAIC’s MGs through GM dealerships (as Reuters suspects), to selling Made-in-China Chevys and Buicks all over the world.
Why such a sweetener is needed if “GM’s common offering is oversubscribed by at least five times,” as the DetN has it, is anybody’s guess. I bet even if we pass the hat around and collect a billion amongst ourselves to buy 2 percent of GM, we won’t get access to GM’s worldwide sales channel. At one point last week, U.S. and Chinese government officials became involved in the discussions between GM and SAIC, Reuters heard. Maybe that made the difference.
SAIC doesn’t need a large chunk of GM stock. They already own 51 percent of the Chinese joint venture, GM’s biggest market. They had also received half of GM’s prized (but underdeveloped) India business, key to the next market to explode. Now they receive the keys to the rest of the world. The idea behind a Chinese joint venture always was to get access to a hot market, but to keep the Chinese joint venture partner in the Chinese box: No exports! That box has been shredded.
What did Ed write a year ago? “With the Chinese government pushing for consolidation in the auto industry, SAIC may see GM as a dying host from which to springboard into international prominence.” Again, TTAC prophecy turns into reality.
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Washington/GM and China are managing the optics, and the news cycle. The 1% is only a start, but it allows the players to turn Chinese participation into a non-story: "China only got 1% - nothing to see here, folks. Move along. It's still all mom, apple pie, and Chevrolet." Want a parallel? It's just like a politically-risky bill moving through Congress. A gutted version gets passed - and written about by the MSM - and the devilish details are added later in committee. Here is something else dangerous: the Washington/GM/UAW axis now has clandestine thug available to help strongarm and extort GM's competitors. "Do what we want in our domestic market, or our Chinese friends will beat the crap out of you over there." And vice-versa. Now that's deniability! Like Toyota at NUMMI, I expect the Japanese and Koreans are about to discover a whole new set of problems as Washington and China link up behind the scenes to screw them in a 1,000 different ways.
Ifs, probablys, expecteds... I have to admit, I didn't see a maybe in the posting. Since we're just speculating here, I'll throw in my thoroughly uninformed opinion. After this initial action, SAIC buys GM wholesale in 2012. it nulls and voids all contract with the UAW/CAW and ceases all North American production, using only Chinese facilities to supply retailers worldwide... I'm quite sure some people are 'creaming their jeans' expecting this scenario to happen. So far, no evidence that it's going to shake out this way. "Again, TTAC prophecy turns into reality." Until any of this actually happens, I think I'd put a hold on hoisting that "Mission Accomplished" banner...