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?