According to General Motors' prospectus for its IPO, GM allowed SAIC to acquire 1% of its newly issued stock in return for a bigger stake for GM in SAIC-GM-Wuling Automobile Co. Wuling is China's leading producer of commercial minivans, which is the perfect product for India. Last December, the two automakers set up a 50-50 joint venture to sell Wuling's minivans in India.
SAIC provided the cash, while cash-strapped GM pledged its existing Indian assets. Now GM will be allowed to raise its stake in Wuling to 44%. SAIC will retain 50%, and the Liuzhou government will reduce its 16% share to 6%.
It's a smart deal for GM, but both partners will benefit. GM hasn't been a major player in India because it couldn't match Maruti's low prices. Now, GM can compete. Meanwhile, SAIC will learn to do business in a major foreign market, the next step of its transformation into an international company.
India is a major prize. Last year, the country's economy grew at a blistering rate of 7.4%. Moreover, India has a population of 1.2 billion, approaching China's 1.3 billion citizens. Yet, India's auto sales were less than 2.3 million units in 2009--only a fraction of China's 14 million units, according to J.D. Power.
China is the world's fastest growing auto market right now. But over the next few years, its auto sales will cool a bit after experiencing explosive growth in 2009 and 2010. Both GM and SAIC want to be where the growth is. That's the real reason why SAIC purchased a stake in General Motors.
--by Yang Jian, the managing editor of Automotive News China, a title of Crain Communications which first published this article.
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