General Motors Co. and its main Chinese partner announced a venture Friday to sell vehicles in India, uniting in the two fastest-growing car markets in a deal that reflects GM's reduced status as a global automaker, according to Associated Press.
As part of the deal, GM gave majority ownership of its main China joint venture to Shanghai Automotive Industries Corp., which is to invest up to $350 million in the India initiative. GM said they also would collaborate in future efforts to sell vehicles in other emerging markets such as Southeast Asia.
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GM has struggled for market share in India's fast-growing car market and a company official said bringing in SAIC and its investment meant the Indian venture could develop more quickly.
The deal comes on the heels of GM's board and CEO Fritz Henderson parting ways Tuesday, the board upset that the automaker's turnaround wasn't moving more swiftly and Henderson frustrated with second-guessing, two people close to the former CEO said. Board Chairman Ed Whitacre Jr. has taken over as CEO while a global search is conducted.
Analysts said the moves in China and India reflect the U.S. automaker's pressing need for money as it overhauls operations following a restructuring in U.S. bankruptcy court. The U.S. government owns 60 percent of GM after providing billions of dollars in loans.
GM agreed to turn over 1 percent of Shanghai General Motors to SAIC, which will give the Chinese partner 51 percent of the company. Reilly said GM valued that 1 percent at $85 million. He said the transfer will give SAIC the right to approve the joint venture's budget and the appointment of senior managers, but he said the partners already operate that way and both are satisfied with management, so there should be no major changes.
Reilly said SAIC wanted majority ownership of the China venture so its financial results could be reported as part of SAIC's earnings. He said GM agreed to that "to get their full cooperation and the full cooperation of the Chinese government in other things," though gave no details.
Total investment in the India venture is expected to be more than $650 million, Reilly said. GM was contributing half in the form of factories and a distribution network in India and SAIC would provide the rest, he said, though declined to say whether that would be cash or other assets.
The venture also will sell Chinese-made GM cars and mini-commercial vehicles.
Separately, the U.S. automaker and Suzuki Motor Corp. agreed Friday to end their manufacturing joint venture in Canada, leaving GM without a Japanese production partner after also severing manufacturing links with Toyota Motor Corp.
Like other global automakers, GM has said it wants to use India as a small car production base for export.
GM executives told The Associated Press in June that the company's regional units could no longer turn to their U.S. parent for funding. At the time, GM was in the midst of a $645 million expansion in India and Thailand.
GM has also run into trouble with its South Korean unit, GM Daewoo Auto & Technology Co., which saw its finances deteriorate due to a sharp drop in sales and large losses on currency hedging bets.
In October, GM pumped 491.2 billion won ($416 million) from its global operations into GM Daewoo, raising its stake to 70.1 from 50.9 percent through a rights issue that other shareholders, like the state-run Korea Development Bank, declined to participate in.
The GM deal makes SAIC the first Chinese automaker to come to India.
Analysts say the company will have to overcome Indian consumer prejudice against Chinese goods. Products made for China might not work in the Indian market, which is dominated by small, affordable cars, though analysts say GM's Chinese-made Wuling buses might succeed.
GM itself has done a poor job at cracking the Indian auto market.
GM's sales in India rose about 10 percent last year to 65,702 cars, but the company is still a distant fifth to Maruti Suzuki, which sold 711,818.
GM has invested more than $1 billion in India, where it manufactures eight models under the Chevrolet brand. Its two factories there can turn out 225,000 cars a year, far more than it sells domestically.
JD Power forecasts that car sales in India will grow from 1.7 million in 2008 to 3.2 million in 2015, while car sales in China will surge from 8.8 million to 16.0 million over the same period.
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