GM To China: Recall! We Want Our Shares Back!

gm to china recall we want our shares back

In December 2009, freshly government owned GM cut a deal with its Chinese joint venture partner SAIC: For the chump change of $84.5 million, GM sold SAIC one percent of their Chinese joint venture. It was not just any one percent. It was THE one percent, the golden share that brought SAIC’s holdings to 51 percent. It allowed SAIC to consolidate the profits of the GM China JV in its books. And now, GM wants the golden one percent back.

“We have an option to buy that 1 percent,”GM CEO Dan Akerson told shareholders yesterday at the automaker’s annual meeting in Detroit. “It’s our intention to exercise that.”

Why and what for is anybody’s guess. For control? The usual Chinese standoff 50:50 split provides not more control than 51:49. Back when, then GM China chief Nick Reilly told the New York Times that “the 51 percent stake would give S.A.I.C. the right to approve the venture’s budget, future plans and senior management. But the venture has a cooperative spirit in which S.A.I.C. has already been able to do so.”

Last we looked, GM didn’t write the law in China. What’s SAIC supposed to do? Cheat on Chinese taxes? Understandably, Akerson’s announcement causes a lot of shaking and scratching of Chinese heads:

“Any possible repurchase by GM needs to meet the condition that SAIC can include Shanghai GM’s revenue into our accounts,” Zhu Xiangjun, a spokeswoman for SAIC, said to Bloomberg. “That’s why we bought the shares in the first place.”

“GM may find it difficult to buy back its stake because it’s not in the interest of SAIC or the Chinese government to sell,” said Zhang Xin, an analyst with Guotai Junan Securities Co. in Beijing. “The Chinese government has been encouraging automakers to be independent and they’re unlikely to approve GM’s repurchase unless GM can offer some attractive terms in exchange.”

And what could those attractive terms be? Bloomberg brings up an interesting point:

“Even as the automaker sells more cars in China than in the U.S., it earns more profit in the U.S., where it delivered 2.22 million vehicles in 2010. GM’s North American operations had profit before interest and taxes of $2.13 billion in the second quarter, while the company’s international operations, including China, earned $646 million, it said Nov. 10. “

The way to make money with a joint venture is usually not by divvying up profits. One charges license fees for cars, sells systems, parts, anything to reduce the foreign profit before it is split with the joint venture partner. What Bloomberg seems to insinuate is that there might be a deal that looks ok on paper, but that will reduce these unequal profits down the line.

That one percent is worth much more than $84.5 million to the Chinese. If Akerson wants it back for whatever unfathomable reason, then it will cost him.

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  • Tstag Tstag on Jun 09, 2011

    China is a tough place to do business. Ask the MG Rover Phoenix 4 who like SAAB kept trying to do deals only to be scuppered by Chinese government interference.

  • Carguy65 Carguy65 on Jun 17, 2011

    Thanks for the article Bertel! This is the most underreported subject of major importance to GM that I know of. GM has lost control of its growth market and can't get it back. Why did GM sell the 1% for such a paltry sum? There is more to this story. I wish I knew. Do the Chinese have rights to all GM technology now? In any joint venture one party is akin to a chicken the other party akin to a pig. One party gives eggs to the venture and thrives the other party sacrifices ham. GM is giving ham.

  • SCE to AUX It's not really a total re-badge since some of the body parts are unique, and the interiors are quite different.As I mentioned the other day, the Tonale has a terrible name and a dim future.As for the Alfa team - guess what, this is how corporate ownership works. You are part of Stellantis partly because you're not viable as a standalone business, and then your overlords decide what's shared among the products.By the way: That Uconnect infotainment system found in Alfas was originally a Chrysler product... you're welcome.
  • Kurkosdr Someone should tell the Alfa Romeo people that they are a badge owned by a French company now.The main reason PSA bought FiatChrysler is that PSA has the technology to enter the luxury market but customers don't want a French luxury car for psychological/mindshare reasons. FiatChrysler has the opposite problem: they have lots of still-respected brands but not always the technology to make good cars. Not to say that if FCA has a good platform, it won't be used in a PSA car.In other words, if those Alfa Romeo buds think that they will remain a silo with their own bespoke platforms and exclusive sheet metal, they are in for a shock. This is just the start.
  • Arthur Dailey For the Hornet less expensive interior materials/finishings, decontent just a little, build it in North America and sell it for less and everyone should be happy with both the Dodge and the Alfa.
  • Bunkie I so wanted to love this car back in the day. At the time I owned a GT6+ and I was looking for something more modern. But, as they say, this car had *issues*. The first of which was the very high price premium for the V8. It was a several thousand dollar premium over the TR-7. The second was the absolutely awful fuel economy. That put me off the car and I bought a new RX-7 which, despite the thirsty rotary, still got better mileage and didn’t require premium fuel. I guess I wasn’t the only one who had this reaction because, two years later, I test-drove a leftover that had a $2,000 price cut. I don’t remember being impressed, the RX-7 had spoiled me with how easy it was to own. The TR-8 didn’t feel quick to me and it felt heavy. The first-gen RX was more in line with the idea of a light car that punched above its weight. I parted ways with both the GT6+ and the RX7 and, to this day, I miss them both.
  • Fred Where you going to build it? Even in Texas near Cat Springs they wanted to put up a country club for sport cars. People complained, mostly rich people who had weekend hobby farms. They said the noise would scare their cows. So they ended up in Dickinson, where they were more eager for development of any kind.
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