By on April 19, 2012

GM and its Chinese partner SAIC finally have worked out a deal that would get GM its coveted golden share back. In its darkest hour, GM had sold one percent of its 50:50 joint venture to SAIC, for the chump change of $85 million. Later, it became known why the number was so low: SAIC co-signed a note of $400 million. GM needed the cash to save its Korean arm. GM itself was facing bankruptcy, which happened only little later. Now, the share is coming back. For a hefty price.The return of the golden share was not easy. Chinese accounting rules say that a company that has substantial control of a partnership can reflect its full earnings on its books. According to the WSJ, “GM’s China ventures last year generated $30 billion in revenue and $3.2 billion in profit, of which GM received about $1.5 billion.” SAIC could book the full $3,2 billion. Not a bad deal for $85 million. Understandably, SAIC wants to continue showing the full profit on its books.

To do so, a complicated structure was worked out, which GM may regret one day, if not already. The Wall Street Journal and Reuters say that the deal will go down as we predicted last year. GM and SAIC will establish a sales company. SAIC will have 51 percent majority control of the sales company, “which would be where revenue is booked”, says the WSJ.

In turn, GM will receive 1 percent of Shanghai GM and will return to a 50:50 partnership in a company that has been stripped of the sales company that collects the money. You don’t think that’s a good deal? I agree.

Even worse, GM is no longer afforded the possibility of owning the sales company outright. As we explained last year, Chinese rules demand a joint venture for car manufacturing. Two crucial areas of the business do not need a joint venture: Parts manufacturing and the selling of cars. Foreigners have quietly established fully owned parts manufacturing enterprises in China and are looking into doing the same with distribution networks. A Chinese sales company does not need a Chinese joint venture partner, let alone one that has majority control. GM is giving up control of something it could own outright, in exchange for going back to a 50-50 Chinese standoff situation.

What’s more, GM and SAIC are moving closer and closer elsewhere on the planet. GM’s international operations are already in Shanghai. GM and SAIC are going into the interesting Indian market together. GM and SAIC already export cars to Latin America, “and potentially could begin building vehicles there, but not for some time,” says the Wall Street Journal.

GM CEO Dan Akerson already hints at a joint venture of global proportions:

“SAIC is the principal relationship that we have around the globe now and we expect that to be the case into the future.”

Other automakers don’t do joint ventures in important growth markets such as India or Latin America. They want to book the profits themselves. A financially weak GM has sold its future to a Chinese partner.

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8 Comments on “Get A Slice, Give Half The Cake: GM Gets It’s Golden Share Back, Cedes Control Of Chinese Sales...”

  • avatar

    You could change “A financially weak GM has sold its future to a Chinese partner” to “A financially weak America has sold its future to a Chinese partner.”
    To save $100 on a dishwasher, the Chinese have been given 100+ years of manufacturing expertise and access to technologies that cost billions to create.
    How many industries will we have to lose before someone wakes up and realizes that worshipping at the altar of Globalization is a mistake. Worse, the demand of ‘choice,’ today will curtail choices in the near future.
    The next 20 years are going to be very interesting.

    • 0 avatar

      Totally agree, but like the bailout, these things are being forced on the many while the few benefit. I cringe to think what the future will bring.

      • 0 avatar

        we all benefited from the bailout, I know in your simple logic thinking you think that GM and Chrysler workers would be affected, no it be a domino affect, it would have put the united states into a depression. It would be less taxes brung into the US, not only that retail stores would have been affected also. Sure you are probally think “well the foreign car companies would have picked up the slack” No, because there wouldnt be anybody who could afford a new car. That bailout money would seem like a bargain compaired to all the welfare unemployment and other governement cash assistance programs to help everyone who lost their jobs. So cringe on that

  • avatar

    Just curious, was this Korean arm worth saving? Does it add that much to the bottom line? I mean are they going to make up the diff in the Korean market?

  • avatar

    The Korean arm was probably worth saving…your Chevy Cruze, Chevy Malibu, Chevy Sonic sold in the US were developed largely by GM Korea, and some of the best sellers in GM China are also developed by GM Korea (Buick Excelle, for example, China’s best selling car).

    In other words, most all of GM’s affordable cars are being developed by GM Korea, with less in put than previously from Opel in Europe, and very little input from GM US. Shanghai GM is taking a greater role in development also, probably taking some work from Korea in the process.

    My thoughts on this article…if GM gets 49% of the profits in cash from the sales company but doesn’t get to “book” it, doesn’t that come across as an advantage, tax wise?

  • avatar
    Volts On Fire

    For a company so desperate to survive in 2008 that it was willing to lay down with all sorts of devils, GM shouldn’t claim surprise when the devils insist on their due. As has proven to be the case so many times before, the ChiComs are nothing if not very shrewd in their business dealings.

    In a similar vein, I’d absolutely love to see the next Republican president send a very clear message to GM on January 20 – “You have 30 days to repay our remaining $28 billion and change, or we foreclose. And you’ll be accompanying us to the bank with a gun to your back to make sure the check clears. Not a metaphor.”

    There’s no hope for American industry at this point – we’re just too far gone. Might as well cash out with at least a few of our principles still intact.

    • 0 avatar

      On January 20, Mitt Romney will be overseeing the bulldozing of his $12,000,000 La Jolla beach house.

    • 0 avatar

      and if GM went under that 12 billion dollars owed from the taxpayers will seem like a bargin compaired to all the new unemployment welware, and other government assisted programs that will be costing the taxpayer. It wouldnt be GM workers affected it be a domino effect, less truck drivers, less rr engineers, less track workers, less police in certain areas, and not only that it would affect the suppiers of GM also. Be careful what you wish for.

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