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December 5, 2009

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Home » Business » Auto

GM tips Shanghai GM control to SAIC, its new India partner

GENERAL Motors Corp yesterday gave up controlling power in its Chinese flagship venture with Shanghai Automotive Industries Corp, and the two companies said they would join together to sell cars in India.

Analysts said the moves show the biggest American automaker's great need for money as it overhauls its global operations following a restructuring in a United States bankruptcy court.

Detroit-based GM agreed to sell 1 percent of its stake in Shanghai General Motors, which it had owned 50-50 with SAIC, at a value around US$85 million, said Nick Reilly, president of GM International Operations.

The equity transfer will allow SAIC, China's biggest auto maker, to take a controlling 51 percent stake in its Shanghai joint venture with GM.

GM and SAIC also agreed to set up a US$650 million joint venture in Hong Kong to take over GM's India business, according to the companies' statement yesterday.

The united companies will produce and sell small cars and minivans developed by Chinese companies Shanghai GM and SAIC-GM-Wuling in the India venture, which is to start operation in the first quarter of next year.

"GM pinned high hopes on India but it lacks money," said Wang Liusheng, an auto analyst from China Merchants Securities Co.

He said GM didn't do a good job on the Indian market on its own. "SAIC is quite financially strong," he added.

India's surging economic development has spurred strong auto demand there, especially for low-priced vehicles. GM expects total vehicle sales in India to triple within the next 10 years to more than 6 million units.

Reilly said GM believes there is tremendous market potential in India and that teaming up with SAIC will give it expertise in low-cost vehicles to maximize the business opportunity.

"India has the rapid growth market," said Reilly.

"We can move significantly forward by leveraging some models we have in Wuling and Shanghai GM."

GM's India venture will include two vehicle-manufacturing facilities, a power train plant and nationwide distribution network. Reilly said GM hopes to escalate to full capacity of 225,000 units by around 2012.

GM was the No. 5 market player last year in India, with sales of 65,702 units, lagging behind Japan's Suzuki, which took a market share of around 50 percent.

"There will be quite some room for Wuling's minivan in the Indian market because it remains price competitive," said Yale Zhang, an auto analyst from consulting firm CSM Worldwide Asia in Shanghai.

Established in 2002, the three-party venture SAIC-GM-Wuling is a leading minivan and minitruck maker in China, with a 50 percent market share. Sales through the end of November totaled about 3.4 million units.

GM, which now holds a 34 percent stake in SAIC-GM-Wuling, has been under discussion to increase its stake in the venture, of which SAIC owns 50.1 percent. Liuzhou Wuling Automobile Corp holds 15.9 percent.


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