Earlier this week, we reported that General Motors is in the process of repurchasing a 1 percent stake in its Chinese joint venture — Shanghai-GM. As part of the deal, ownership of the joint venture would be restored to an even split between General Motors and its partner SAIC. But when did GM sell the 1 percent in the first place… and why? Here’s the backstory.
During (the gloomy economic downturn of) 2009 — in the run-up to its bankruptcy — GM sold its one percent (out of 50) stake to SAIC for a mere $85 million — a figure that wasn’t revealed at the time of the transaction; the arrangement, in fact, had us shaking our heads in disbelief — but that’s neither here nor there. Multiply $85 million by 100 and you’ll get $8.5 billion — the (linear) estimated net worth of the joint venture; so someone, somewhere, estimated the (forced) partnership to be worth a whopping $8.5 billion.
So, GM was cash-strapped and was looking at any and all avenues of getting its hands on some coin — pronto. However, The General planned all along to return the joint venture to a 50-50 right of posession.
But the story doesn’t end there, as SAIC is retaining a 51 percent stake in the sales side of the business, giving it the upper hand in marketing, distribution, and final-sales facets of the operation. The deal is pending regulatory approval from the Chinese government — which itself is the “equivalent of traversing through a political morass” — told a source close to the transaction to GM Authority.
The GM Authority Take
The fact that GM (and all other automakers that desire to do business in China) has to partner with a technologically-inferior Chinese automaker (SAIC) is disconcerting in and of itself. Perhaps what’s even more interesting is that SAIC has a very similar deal in place with Volkswagen — aptly named Shanghai-VW, that has been steadily approaching the sales levels of Shanghai-GM. And The General’s embarrassing position that led it to sell a controlling stake to SAIC for a quick cash infusion during the time of the carpocalypse may be even more unsettling.
Nevertheless, our spirits are somewhat uplifted by the restoration of equal ownership and by the ability of GM management to carry out these transactions, as well as the various negotiations that undoubtedly were part of the re-acquisition process. What would make us even more content is if SAIC went away entirely and let GM do its thing in an unfettered nature. Hey, we can dream — right?
Comments
Yea I remember one of GMA’s first articles was a piece hating on GM for selling one percent and giving SAIC access to its technology and development. And I can see that you remember it well too 🙂
It sucks that GM has to deal with a tiny chinese automaker that couldnt make a car go faster than 35 on its own just to do business in China, but I think that in a couple of years when Chinas auto industry is much more stable and their domestic industry has gotten a bit stonger, than all of these unholy marriges aka “joint ventures” will end, automakers are only putting up with alot of this because there making a ton of money once they stop making that much money, theyll be less willing to put up with all the restrictions.
I dont see a chinese company becoming a credible threat to established global companys in the chinese market for another 10 years, I dont see a chinese company posing a threat to them in developing countries like india and brazil for another 20 years, and I dont see a chinese company being a credible threat on the global scale for another 30 years or more. And having a chinese company a global threat to the luxury market which now consists of BMW, Mercedes, and Audi and hopefully soon Cadillac, in my lifetime.
But the question of whether chinese cars will be sold in mass numbers around the world is not of if, but of when, so everyone better be prepared.
I do wonder, though, — by the time the Chinese “figure it out”, however many decades that may take them, whether it will be too late. Because they would have to shoehorn themselves into an already very-saturated market consisting of competitors that have been successful in global design, engineering, production, marketing, and sales for decades, if not centuries. Perhaps the Chinese will be swallowed up by the global giants of the day.
Alex, there is more to the story. GM sold the 1% so SAIC could borrow $400,000,000.