GM’s Joint Venture

Published on Author claud

After reading “American Wheels, Chinese Roads”, I decided to look a little bit more into the sale by GM of the controlling percentage in the joint venture. Dunne makes this sale a key point in the conclusion of his book. He believes that “GM’s sale of 1 percent of equity to SAIC in 2009 was an ominous event, confirming Chinese control of the Shanghai-GM joint venture”.

Today, of course, General Motors has already repurchased that 1% stake it sold in ’09 for $119 million. This purchase put the equity stake again at a 50/50 split. What Dunne didn’t mention, is that not only did GM walk away with $84.5 million in its attempt to avoid bankruptcy, but the sale also lubricated GM’s attempt to obtain $400 million in a line of credit from Asian banks. This meant that they would not need to utilize as many “bailout bucks” as previously thought to their Asian operations.

Still, the SAIC retains 51% of the sales arm of the company, where the revenue is booked. I think it will be very interesting to see how this relationship develops over the next decade, and see exactly how this fairy tale story of a joint venture between a powerful US corporation and a Chinese partner ends.

One Response to GM’s Joint Venture

  1. Neat to spot the repurchase. For the latest results see “GM Widens Lead Over Toyota in China With 7.9% Sales Gain” Mar 5 2013 in Bloomberg.

    The sales end is heavy on real estate, and so semi-political negotiations with local governments were an element. So GM and other firms were quite happy to be a minority partner, both so as not to be involved in activities that might run afoul of US law and because it required an expertise unrelated to cars. Of course the marketing aspect is more familiar, but in the early days this too required expertise that GM did not have (and perhaps no one in China had!). That’s changing, though apparently GM has not increased its stake, which could be an indirect way to get a de facto majority stake in its overall operation with SAIC [50% of the mfg end, 50+% of everything else is ??? a controlling stake].

    The most recent (March 8) Automotive News China has an article that starts as follows:

    When global automakers entered China, they had no idea how to sell their products here. To play it safe, they let managers from their Chinese joint venture partners oversee sales. But over the years, global automakers have learned a lot about Chinese consumers. Several years ago, they started to take control of sales, the only area in which they gave their Chinese partners a leading role. Lately, this trend has accelerated. A good example is Daimler AG, which has struggled to keep pace in China with BMW and Audi. Over the past three months, Daimler raised its stake in both of its Chinese joint-venture sales operations. The German company now holds a 75 percent stake in Mercedes-Benz China, a partnership with Hong Kong car distributor Lei Shing Hong Ltd. that sells imported vehicles. Daimler also gained a controlling 51 percent share of Beijing Benz Automotive Co., a partnership with Beijing Automotive Industry Holding Corp. that sells cars made in China.

    (Yang Jian, Global automakers push local partners aside to grab control of China sales)

    Unfortunately for us, GM does not break China out as a segment in its financial statements. You can find those on the investor relations part of the GM web site.

    Finally, SAIC is trying to add capacity and reach. In principal that should be easy: 10 of China’s 71 domestic car companies had output of zero — yes, nil — in 2012. But so far there are no deals, and the facilities of these firms may not be such as to be useful for a “modern” manufacturer. Meanwhile, SAIC nad GM will add 2 plants in 2014 to try to keep and hopefully extend its top 15% market share.