By on November 15, 2010

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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10 Comments on “SAIC Buys 1% Of GM, Gets Keys To World Markets Thrown In...”

  • avatar

    That is an interesting development. I was fairly impressed with the new crop of MG’s coming out of China/ UK. The build quality was first class and although the MG 6 looks generic it could well give the Astra a fright.

    In essence GM has just armed MG to go hunting with the big fish. Pretty shocking stuff all in all.

  • avatar

    Unless they are discounted for inflation, buying US bonds is a losing proposition as long as the Fed continues with low interest rates.  The Chinese, sitting on more dollars than God would rather purchase hard assets, if they can.  A recent editorial in the People’s Daily argued that the US should allow more direct Chinese investment.

  • avatar

    Maybe the “access to GM sales markets” was more of a bribe to keep SAIC from buying too much stock?

  • avatar

    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.

    • 0 avatar

      America is nothing without China as potential enemy. It is the only reason why Japan and especially South Korea is allied with the US and what you suggest would happen hat alliance would blow up and with it the massive arms buys Japan and Korea do (only) in the US

  • avatar

    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…

    • 0 avatar

      The car market doesn’t work that way. There are very significant advantages to building local (not 6 weeks on a boat, no interest payments for 6 weeks on a boot, not 6 weeks between production and being able to sale it) and only one significant negative (Local assembly costs, but those are only between 1 and 2k)
      This does not even include the somewhat less wholesome reasons like made in America requirements or using the law to advantage the local producers
      If you look at where cars are made than it is noticable that the cheap cars are made in low cost countries because there assembly cost are a high portion of the price. mid price cars are made were the are sold and expensive cars are made to include the snobbery appeal of made in Germany/Japan/Italy/Great Britain

    • 0 avatar

      @charly: I’m guessing you’re not North American or my sarcasm and ridicule didn’t come through on my post. My statement about the Chinese closing all of the GM plants is meant to be the fantasy of what some anti-GM, anti-domestic, anti-administration people would like to see.
      Having read the linked Reuters dispatch, I really didn’t get the sense of impending doom of the original poster. I don’t believe there’s enough information released to come to the conclusion that GM granting SAIC access to sales channels worldwide will somehow result in a complete Chinese takeover of the free world’s auto dealerships.

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