SAIC to gain majority in SAIC-GM Joint Venture
Yesterdays news of a SAIC trading suspension came as a shock to many people, but the reasoning for the suspension was due to SAIC and GM’s plans for the Indian car market, and also due to GM planning to give SAIC the majority of the JV.
The deal is reportedly set to give SAIC access to half of GM’s Indian unit, and sell 1% of its 50-50 joint venture Shanghai GM to SAIC Motor Corp, which would give SAIC the majority in the joint venture with General Motors.
GM is set to keep equal voting rights in Shanghai GM’s company decisions, and may keep the option to buy the stock back later at a premium should GM choose to.
GM’s reasoning for transferring the Indian JV to SAIC, and selling out 1% of its stock to SAIC is still unclear, it could be that GM are willing to take SAIC into India as a partner that has understanding of what a developing nation requires in its vehicles, or GM are still trying to raise funds by mortgaging their assets. However, GM would retain equal voting rights in company decisions. SAIC could pay up to 20% of the joint venture value to take control, while GM would have the option of buying back the stake later at a premium, the sources said.
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GM did this to keep Daewoo. GM is selling its Chinese ventures in order to recapitalized Daewoo and fend off pressure from Korean government to hand over Daewoo.
http://testfunda.com/examprep/mba-resource/current-affairs/article/rise-of-the-chinese-dragon-continues-gm-to-sell-stake-to-chinese-partner.htm?assetid=e614637a-3359-44ee-bf4e-88d0e6187fcb
“Analysts say that GM is paying a high price to retain control of Daewoo, whose small car designs GM sees as critical in the scenario that oil prices continue to range above $70 a barrel. In exchange, GM is sacrificing control of two of the world’s fastest growing automobile markets.”
GM needs engineering talent from companies like Opel and Daewoo probably more than their North American Operations. But I believe the Chinese auto companies will eventually catch up to American, Japanese and Korean companies in a decade or less. Many Chinese auto companies are practically being trained by more advanced foreign companies through their joint ventures. Eventually the Chinese companies may not need the foreign joint ventures anymore.
Maybe GM sees this and wants to sell it’s joint venture little by little while it is still worth something.
@ Go Red
> Many Chinese auto companies are practically being trained by more advanced foreign companies through their joint ventures.
Foreign companies teach their Chinese venture partners how to assemble cars; not how to engineer cars. All that foreign companies will do in China is like slight styling changes, but no vehicle engineering. Vehicle engineering in China cannot happen until foreign companies are permitted 100% ownership of their Chinese operations.
This is why BAIC is desperately hunting for companies like Opel and Saab, because after 8 years of JVs with Hyundai and Mercedes BAIC learned how to screw cars together and run an auto assembly line, but not how to engineer cars.
The same thing with GM in China. GM sees China as a market but not as the source of vehicle engineering. GM sees Korea as the source of vehicle engineering but not as a market. Since GM’s vehicles are and will continue to be engineered in Korea, GM cannot afford to lose Daewoo, and this is why they took this drastic step of handing over the control of GM China in order to raise cash necessary for keeping Daewoo.