GM Sells Controlling Stake Of China Operations To SAIC; But Is It Worth It?
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Hot on the heels of announcing a new joint venture with China’s SAIC to infiltrate the Indian auto market, GM announced it has sold the controlling stake of its China business to the same company.
All GM needed to do here is sell one percent of its 50-50 Shangai GM venture to SAIC (Shangai Automotive Industry Corporation Group – 600104 SS). In return, GM will get… well – I’ll let GM speak for itself:
Both companies reached an agreement for GM to transfer 1 percent of its stake in Shanghai GM to SAIC Motor. This will assist China’s leading listed automotive company in consolidating Shanghai GM revenue into SAIC Motor, which will provide investors a clear understanding of its business. Shanghai GM management will continue to operate with the existing joint management structure and oversee operations of the joint venture.
So GM sold the one percent stake to “…provide [Chinese] investors [with] a clear understanding of [Shangai’s] business”? What a favor!
The GM Authority Take
In all seriousness, the reason for the move is fairly obvious: GM is working on establishing its credit rating as a new company. To do that, it needs as much capital (a fortress balance sheet), to supplement its current $43 billion. In addition, it also needs to pay off its loans to the U.S. government, which will come from its liquid/cash assets.
As such, GM has decided to sell the controlling stake (of GM Shanghai) to SAIC for a hefty sum. We’ll see what happens next: will SAIC pull a fast one on GM and slowly replace GM management with its own? Only time will tell.
For GM’s sake, I hope the contract included an option for GM to buy back the percentage at a later date (update: it does). And let’s hope the sale was well worth it for GM from a financial perspective (read: SAIC paid some big bucks for the single percentage point).
We have a brief summary of GM’s operations in China after the break, along with the full presser.
About GM, SAIC, and Wuling
Currently, GM sells the Chevrolet, Opel, Buick, Cadillac, and Saab brands in China. Through a partnership with SAIC and Wuling, it also sells Wuling mini trucks. In fact, it has sold more Wuling trucks than its own products in China.
In 1997, SAIC and GM formed their first partnership called Shanghai GM. As part of the deal, the two companies established PATAC (Pan Asia Technical Automotive Center) – an engineering and design joint venture. Another six joint ventures followed, including SAIC-GM-Wuling, GMAC-SAIC Automotive Finance Company, and Shanghai OnStar Telematics (which just launched its telematics services in China this December).
From GM:
Since it began regular production in 1999, Shanghai GM’s domestic sales have grown more than 22 times. Through the end of November 2009, Shanghai GM had sold 2,973,411 vehicles. Since its establishment in 2002, SAIC-GM-Wuling’s domestic sales have grown more than four times, with cumulative sales through the end of November 2009 totaling 3,384,848 units. It has been China’s leading producer of mini-commercial vehicles for the past three years. PATAC has played a key role in reengineering global products for both joint ventures in line with local preferences, regulations and driving conditions.
SAIC Motor Corporation, Limited (SAIC Motor), formally known as Shanghai Automotive Co., Ltd., went public on the Shanghai Stock Exchange in November 1997 with a stock code of 600104. It was restructured in 2006, and now SAIC Motor is the strongest listed vehicle corporation on the A-share stock market in China. As of December 31, 2008, SAIC Motor owned total capital stock of 6.55 billion shares, had consolidated assets of RMB 107.86 billion and had employee headcount of more than 60,000. Its controlling shareholder is SAIC Group.
PRESS RELEASE
SAIC and GM Announce Expansion of Cooperation in Asia
2009-12-06
- Form Hong Kong-based General Motors SAIC Investment Limited
- Will leverage resources in India and plan for other emerging markets
Shanghai – Shanghai Automotive Industry Corporation Group (SAIC) and General Motors Company announced today that the two automakers are expanding their cooperation in Asia.
SAIC and GM, which currently operate eight joint ventures in China, have formed a new 50-50 joint venture investment company, General Motors SAIC Investment Limited. Situated in Hong Kong, it will facilitate their expansion efforts. They also announced plans to leverage their resources to support expansion in emerging markets, beginning with India.
Based on the automotive industry’s long-term potential for growth in India, SAIC and GM have formulated a joint strategy for investment in the country. They will utilize GM’s two vehicle manufacturing facilities and a powertrain facility in India and GM’s nationwide distribution network in the formation of a new joint venture.
Small cars from Shanghai GM and mini-commercial vehicles from SAIC-GM-Wuling, SAIC and GM’s manufacturing joint ventures in China, will be produced and sold in India. These products will join GM’s global vehicles, allowing GM India to quickly add entries in growing market segments. The establishment of the India joint venture is expected to be finalized in the first quarter of 2010. GM believes the additional models and potential volume growth will result in the creation of more jobs in India.
“Changes in the worldwide economy have created new opportunities in emerging markets,” according to Hu Maoyuan, Chairman of SAIC. “By leveraging our individual assets and those of our China joint ventures, SAIC and GM are in a strong position to introduce competitive products outside China that will satisfy the needs of consumers in India and other high-potential global markets.”
“Over the past decade, SAIC and GM have created one of the world’s most successful automotive industry partnerships,” said Nick Reilly, GM Executive Vice President and President of GM International Operations. “Both companies felt this was the proper time to deepen cooperation beyond China’s borders in order to enhance our partnership as part of our individual companies’ long-term growth strategies.”
Both companies reached an agreement for GM to transfer 1 percent of its stake in Shanghai GM to SAIC Motor. This will assist China’s leading listed automotive company in consolidating Shanghai GM revenue into SAIC Motor, which will provide investors a clear understanding of its business. Shanghai GM management will continue to operate with the existing joint management structure and oversee operations of the joint venture.
SAIC and GM began cooperation in 1997, when the two automakers formed Shanghai GM and the Pan Asia Technical Automotive Center (PATAC) engineering and design joint venture. That was followed by the launch of six additional China joint ventures, including SAIC-GM-Wuling; GMAC-SAIC Automotive Finance Company, China’s first approved and operational automotive financing company; and Shanghai OnStar Telematics, which will provide a range of in-vehicle safety, security and communication services for selected Shanghai GM models starting this month.
Since it began regular production in 1999, Shanghai GM’s domestic sales have grown more than 22 times. Through the end of November 2009, Shanghai GM had sold 2,973,411 vehicles. Since its establishment in 2002, SAIC-GM-Wuling’s domestic sales have grown more than four times, with cumulative sales through the end of November 2009 totaling 3,384,848 units. It has been China’s leading producer of mini-commercial vehicles for the past three years. PATAC has played a key role in reengineering global products for both joint ventures in line with local preferences, regulations and driving conditions.
SAIC Motor Corporation, Limited (SAIC Motor), formally known as Shanghai Automotive Co., Ltd., went public on the Shanghai Stock Exchange in November 1997 with a stock code of 600104. It was restructured in 2006, and now SAIC Motor is the strongest listed vehicle corporation on the A-share stock market in China. As of December 31, 2008, SAIC Motor owned total capital stock of 6.55 billion shares, had consolidated assets of RMB 107.86 billion and had employee headcount of more than 60,000. Its controlling shareholder is SAIC Group.
General Motors Company, one of the world’s largest automakers, traces its roots back to 1908. With its global headquarters in Detroit, GM employs 209,000 people in every major region of the world and does business in some 140 countries. GM and its strategic partners produce cars and trucks in 34 countries, and sell and service these vehicles through the following brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Opel, Vauxhall and Wuling. GM is the joint global automobile partner of World Expo 2010 Shanghai along with SAIC. More information on the new General Motors Company can be found at www.gm.com.
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