GM, SAIC joint venture could grow after deal
 | GM sold a 1 percent stake in Shanghai General Motors to partner SAIC Motor in 2010, reducing its holding to 49 percent. GM has a reached a deal to regain equal control of the JV, sources say. Photo credit: GM |
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DETROIT -- General Motors has negotiated a deal with partner Shanghai Automotive Industry Corp. that will give GM equal control of key decisions in their Chinese joint venture, The Wall Street Journal and Reuters reported Wednesday. The deal allows both automakers to expand their partnership, even outside China.
GM currently has a 49 percent stake in the joint venture, Shanghai General Motors Co., while SAIC has a controlling 51 percent share.
GM CEO Dan Akerson told the Journal that the partners plan to split Shanghai GM into two units: sales and operations.
General Motors would have a 50 percent share of the operations unit, which would make product decisions. SAIC would retain a 51 percent share of the sales unit, which would allow the Chinese automaker to book the joint venture's revenue.
The two automakers must receive approval for the deal from Shanghai's municipal authorities as well as the central government. Akerson told the Journal he hopes to win approval in the "intermediate to near term."
SAIC gained control of the joint venture in 2009, when a cash-strapped GM sold a 1 percent stake for $84.5 million.
Since then, the two partners have cooperated closely on several ventures, such as the sale of microvans in India, the export of vehicles to South America and the introduction of a new Chinese car brand, Baojun.
The deal is an "extremely important development" for GM shareholders and allows the two automakers to share costs and boost revenue, Morgan Stanley analyst Adam Jonas said.
"With issues of control resolved, the two partners can pursue deeper market strategies, even outside of China," Jonas said in a research note.
During GM's initial public offering in 2010, SAIC acquired a 1 percent stake in the Detroit automaker for about $500 million.
And the joint venture was a central part of GM's pitch to investors before its stock market debut in 2010. China is the world's largest auto market.
That GM struck a deal shows that the management team can follow through on its plans, Jonas said in the note.
"We are encouraged to see GM management have the bandwidth to tackle these important opportunities such as ensuring an equitable balance in the relationship with its most important strategic global automotive partner," Jonas said.
The new agreement cements a relationship between GM and SAIC that is starting to look like a global alliance.
Shanghai GM is already the biggest automaker by sales in China.
SAIC is in a similar venture 50-50 joint venture with Volkswagen AG, called Shanghai Volkswagen.
In March, Shanghai GM sold 113,047 vehicles, a rise in sales of 11 percent from a year earlier, and Shanghai VW sold 106,678 vehicles, up 14 percent.
Car sales in China climbed 5.2 percent in 2011, the slowest pace of growth since the nation's car culture took off at the turn of the century, after Beijing scrapped tax incentives for small cars.
China is the world's largest auto market, followed by the United States.
Reuters contributed to this report
You can reach David Sedgwick at dsedgwick@crain.com.
