Tag Archives: GM

GM and SAIC’s Open Marriage

Further word from our man in Detroit about General Motors’ ambitions in China and its relationship with its joint venture partner, SAIC Motors. It is already planning to expand its dealerships in the country. Now it is hedging its bet on its international partnership with SAIC.

When that partnership was struck in 2010, it was talked up as a global one by which both companies could expand into emerging markets, though, it should be said, GM has always had internal reservations about extending what was a necessity in China in to a worldwide relationship. Nonetheless, GM dealers in some Latin America countries have been selling (a few) SAIC’s Wuling micro vans, for example, and Chinese-made Chevy Sails were exported to India and South America, and some models are being locally produced in  a GM plant there.

GM is now thinking more in terms of region-specific partners. In particular, it would work with PSA Peugeot Citroen in eastern Europe and Latin America, and SAIC just in Asian markets outside China.

SAIC and GM are discussing a manufacturing and sales joint venture in Indonesia we are told, with the intention of attacking Toyota’s 60% market share there. Yet that follows SAIC scaling back its participation in the two carmakers’ spluttering joint venture in India, and its choice of a local conglomerate, CP Group, in preference to GM as a partner in Thailand. Executives from both GM and SAIC have been quoted as describing the relationship between their companies as a marriage. It is looking increasingly like an open one.

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GM To Expand Its Dealerships In China

Our man in Detroit tell us that General Motors intends to increase the number of dealerships it has across China to 4,200 from 3,800 by the end of this year. One in ten of those additional dealerships will be for Cadillac, taking the number of its dealerships to 200 from 160. Luxury marques are selling well.

Bob Socia, president of GM’s China operations, is aiming to get ahead of the growing demand for vehicles in what is now the world’s largest car market. Sales of cars and commercial vehicles are forecast to increase by 5%-8% this year, which could take the annual sales total beyond 21 million. Last year they rose 4.3% to 19.3 million vehicles even as economic growth slowed. That, though was a big improvement on 2011′s 2.5% growth in sales, hit hard by the removal of tax breaks for new-car purchases.

The biggest risk to the sales forecast for this year could be more legislation to thin traffic congestion and clean the air in big cities. Guangzhou, Beijing and Shanghai have all already done so. They may see their way to doing more on that front to, if anyone in Beijing can see anything right now. But other cities are expected to start following suit. GM’s dealership expansion could be to keep it ahead of that trend, too.

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SAIC Sails Into India

In what may be a  preview of China’s manufacturing future, or at least a slice of it, SAIC Motor and its U.S. partner, General Motors, have started local production of the first Chinese-designed car for the Indian market. The two will start selling a version of SAIC’s Sail, seen above in a company handout picture, in India next month. Sedan and hatchback versions of the small car, already a popular seller in China, are being produced at GM India’s plant in Talegaon about 100 kilometers outside Mumbai. Production of a SAIC passenger van is due to start by the end of this year. SAIC has a 50% stake in GM India.

Foreign carmakers that have got a toehold in the difficult-to-penetrate India market have done so by having  a tight small car focus and country-specific models. South Korea’s Hyundai has found success that way despite being a late arrival in the  market. So, too, has America’s Ford now it has stopped reselling European models and launched its India-only Figo. GM had tried selling Daewoo-designed models in India but without much success, in part because they were more expensive than local competitors. SAIC not only brings a design but lower-cost manufacturing expertise.

One test for this particular step in Chinese carmakers’ tenuous steps in globalization is whether what works for car buyers in one of Asia’s two big emerging markets will work in the other. Another will be whether it is successful enough for SAIC to overcome GM’s caution about extending the partnership, a necessity in China, to a worldwide relationship.

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SAIC Stake In GM To Test Acceptability Of Chinese Investment In U.S.

What’s good for General Motors is good for, well, China these days, to mangle once more the oft-mangled quote of the company’s long-ago CEO, ‘Engine Charlie’ Wilson. The U.S. government bailed-out automaker is reported by the Wall Street Journal to be in discussion to sell 4% of the company to sovereign wealth funds and other foreign buyers as part of  next week’s initial public offering that will reduce the American public’s stake in GM to 35% from 61%. Among the latter group of prospective investors is Shanghai Automotive (SAIC), which is said to be in talks to take a 1% stake for around $500 million, though it could end up putting up to $1 billion into GM if that would get it better access to the U.S. car market.

Not, of course, that this would be the first Chinese investment in a well-known U.S. company, plus the stake is small, SAIC and GM are joint-venture partners and GM is the top-selling non-Chinese brand in China’s fast growing auto market. There is some industrial logic in the pairing when it comes to global sourcing and marketing, and for both companies perhaps some longer-term positioning benefits ahead of whenever the next round of global consolidation occurs in the auto industry.

Yet it would be a highly symbolic investment and comes when Sino-American relations over trade and investment are tetchy.  GM’s recent sale of a parts subsidiary in Michigan to Pacific Century Motors, a firm owned by the investment arm of the city of Beijing, passed relatively unremarked in the U.S. SAIC’s investment, should it happen, would not, especially in a political atmosphere where the Obama administration’s critics, newly encouraged by midterm elections success, try to make anything the administration touches politically toxic, and the GM bail-out already pushes plenty of  big-government hot buttons as it is.

This Bystander will be watching for the reaction if there is a backlash in the U.S. Ever since China National Offshore Oil (CNOOC) ran into a wall of American xenophobia that stopped dead in its tracks a bid for the U.S. oil company Unocal in 2005, Chinese firms have trodden gingerly when it comes to investing in any assets that have an American flag anywhere close by. We expect more self-assured steps this time.

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Sichuan Tengzhong’s Hummer Bid Dies On The Vine

Sichuan Tengzhong Heavy Industrial Machinery’s $150 million bid for GM’s Hummer division has fallen through having failed to win approval from Chinese regulators. GM says it will begin winding down the iconic brand. The Commerce Ministry, as we predicted, was uncomfortable with the proposed deal and seems to have seen it off by not approving it rather than rejecting it outright. It has been an open secret that some officials weren’t keen on a Chinese company buying the poster child for American gas guzzling extravagance, while others felt uneasy about private vehicle makers expanding abroad ahead of state-owned ones.

Update: Some thoughts on Chinese investments in the U.S. that make sense at China Law Blog.

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Shanghai Automotive Embraces General Motors

What’s good for GM is good for…China. The old saw needs amending following not just November when GM sold more cars in China than it did in its alleged home market but also since GM is to hand over majority control of its thriving Chinese car business to its partner Shanghai Automotive (SAIC) as the pair launch a new joint venture to crack the Indian market for small cars and micro commercial vehicles now dominated by the Japanese. The two already have a JV in South Korea.

While the switch in control of the Chinese JV, Shanghai GM, is being presented as an accounting move to let SAIC consolidate the JV’s earnings (it will buy a 1% stake in the jv for $85 million to give it a 51% stake), China’s carmakers seem to be picking Detroit apart piece by piece. Beijing Automotive Industry is considering bidding outright for GM’s Saab unit, now the Koenigsegg consortium bid, of which it was a part, has collapsed. Bank of China is reported to have set up a $3 billion line of credit for BAIC to finance a possible bid. GM’s Hummer division is being bought by Sichuan Tengzhong. Privately-owned Geely is reported to have lined up the financing for a bid for Ford’s Volvo car business.

The SAIC move is interesting because it is not just buying its way into foreign markets through acquiring distressed assets, but taking GM along with it to teach it the ropes. And nor does it have its eyes on the slow-growing developed markets but the rich promise of emerging ones.

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Tengzhong Buys Its Hummer

Tengzhong Heavy has at last struck its deal to buy Hummer from GM. The troubled U.S. carmaker confirmed the sale subject to regulatory approval but did not disclose the price. This Bystander understands it to have been $150 million, about half the original asking price, and well below the $500 million GM said last year in its bankruptcy filing the brand was worth.

Privately-held Tengzhong will take an 80% stake in the company. Tengzhong shareholder (via Sichuan Huatong Investment Holding Co.) Suolang Duoji, will pick up the other 20% directly. The multi-millionaire Sichuanese also has mining interests and is founder chairman of Hong Kong-listed but Chengdu-based  industrial chemicals maker Lumena Resources, which runs thenardite mining and production businesses in China (thenardite is one of those obscure but omnipresent chemicals used in manufacturing products as diverse as detergent powders and laxatives). It is likely that it is Suolang’s wealth that is bankrolling the deal.

Tengzhong gets the Hummer brand and intellectual property license rights to manufacture Hummers. It will also take over Hummer’s existing dealer agreements (more on the industrial logic behind the deal for Tengzhong ). Formal regulatory approval is still awaited. Shouldn’t be a problem on the U.S side. Officials in the Ministry of Commerce, who will have the final say, while uneasy with a Chinese company buying the poster child for gas-guzzlers when they are trying to turn the country’s car companies green, may just hold their noses.

Update: A Ministry of Commerce official said the ministry is awaiting a report on the deal from the Sichuan provincial office, knows nothing of the detail, and hasn’t yet received a formal application to approve it. More conspiratorial minds than mine will have to read the significance, if any, of that statement and whether it is signaling roadblocks or is just bureaucracy moving at its customary sedate pace.

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Tengzhong Close To Buying GM’s Hummer

Sichuan Tengzhong’s bid to buy General Motor’s Hummer division has been stuck in limbo for some months awaiting Chinese regulatory approval while the U.S. carmaker has focused on off-loading its Saturn operation to Penske Automotive. But now that deal has fallen through, GM is anxious not to let the same fate befall Hummer. South China Morning Post (via Reuters) says Tengzhong executives are in Detroit and an announcement is expected within days. However, though the National Development and Reform Commission has given the Ministry of Commerce the final regulatory say, which makes a deal more likely, there is still no word of formal approval from the ministry.

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Car Parts

While General Motors was making play of its $250 million investment in an R&D plant in Shanghai to develop green auto technologies, China’s auto-parts makers were headed for its home turf.  At the end of last week, some of the leading ones gathered in Detroit for a mini-trade fair to promote Chinese made auto parts. Last year, according to the U.S. Commerce Dept., U.S. manufacturers imported $7 billion worth of Chinese auto parts, up by a third from the previous year. That makes China the U.S.’s second largest auto parts supplier after Mexico.

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