General Motors' initial public offering (IPO) last week revealed that its long time partner in China, Shanghai Automobile Inc., (SAIC), officially owns a 1 percent share of the new GM with a $500 million investment. This little noticed news is a landmark event that may well represent the beginning of China's active participation in the world's elite auto making club.
The significance of GM's resounding resurrection is not so much its shedding off the stigma of being bailed out as "Government Motors," but the decisive China factor in GM's future operations. It is no exaggeration to say that without China there would be no US auto industry today, or that without SAIC there would be no new GM.
The GM-SAIC cooperation is one of those shining spots in the Sino-US economic relationship. It serves as a classic example of how US companies can benefit from a booming emerging market like China, while transforming themselves in the process to be better and more competitive firms.
The SAIC-GM joint venture, which started in the late 1990s, has become the most successful auto operation in China with several of its models regularly making the monthly top sales list. Buick, a beleaguered 107-year-old brand, got a second life in China as a chic, trendy upscale auto brand followed by millions of well-heeled younger-aged white collar people. Today Buick sells more cars in China than in the US.
In the US, the battle for most popular car title is usually between Toyota and Honda. In China, Buick Excell is on course to be the number one sales model this year. In the US, GM's market share leadership position is threatened by Toyota. In China, GM battles Volkswagen, throwing Toyota way behind.
Last year GM sold a little over 2 million cars in the US. In China, the SAIC-GM joint venture sold over three quarters of million cars, and the SAIC-GM-Wuling joint venture sold over a million cars. More importantly, both of these GM operations in China grew at over 50 percent last year, making it a sure bet that total GM sales in China will exceed those of the US this year.
The SAIC-GM-Wuling joint venture is especially worth mentioning. This is a company whose "micro minivans" are little known outside of China, but top the list of most vehicles sold in China. Its flagship product, Wuling Zhiguang, sold over 600,000 units last year.
I have seen several world's top 10 most popular car list, and they all got it wrong by missing SAIC-GM-Wuling's Wuling Zhiguang model. This company is also very well run by following a "low-cost-high-value" strategy, trumpeted by former GM CEO Rick Wagoner. In fact, GM's entire emerging market strategy is centered around Wuling's product line.
In India, GM and SAIC plan to jointly produce small cars based on the Wuling platform. GM is contributing manufacturing facilities and a sales network it already has in India while SAIC is to invest about $300 million to $350 million in cash.
Both companies are pooling resources together to develop next generation power train systems and new alternative energy technologies. This cooperation is not just a one-way street. China also benefits greatly from its joint venture history with GM.
Today SAIC is the top automaker in China with advanced core technology capabilities. Aside from its joint venture operations with GM and Volkswagen, it also runs the successful MG-Roewe operations it bought from the UK.
The worldwide automobile landscape is going to see continued consolidation in the next few years. In the end there might be only less than 10 auto giants surviving. VW, Hyundai, Renault-Nissan, Toyota, and Honda seem to be on a solid footing right now. As the largest auto market in the world, it will be a shame if no Chinese companies make into that elite club.
In that regard the most promising Chinese company right now is undoubtedly SAIC with a production volume of over 2 million vehicles last year. Given the strategic alliance between SAIC and GM, it is not unimaginable that one day they may evolve to a Renault-Nissan type of unity or may simply merge into one company altogether. I hold my fingers crossed that SAIC's 1 percent stake in GM is just the beginning of a huge Sino-US cooperation success story.
