Shanghai Automotive Industry Corporation (SAIC), China's largest automaker, is poised to grow its presence in the world market. SAIC on Friday secured a controlling stake in Shanghai GM, its joint venture with GM, and agreed to expand into India by creating another venture with the U.S. automaker.
The Chinese company is fast becoming one of the world's leading automakers, having acquired MG Rover of the U.K., China's Nanjing Automobile, and Korea's Ssangyong Motors, which it abandoned in the midst of the economic crisis. In addition to GM it also has a joint venture with Volkswagen in China, and it is expected to rank eighth worldwide in sales this year by selling 2.65 million units.
GM on Friday agreed to sell 1 percent of Shanghai GM to SAIC, giving its Chinese partner a 51 percent stake. Under the agreement the two firms are entitled to the same voting rights and GM can reacquire the 1 percent stake for a premium price, but in fact SAIC has taken over management rights of Shanghai GM.
Recently SAIC has been broadening its influence over Shanghai GM, which produced 1.63 million cars in the first eleven moths of this year. "SAIC wants to have independent management rights and expand its overseas presence, while GM needs cash," said an analyst at a foreign investment firm. "Ultimately Shanghai GM will likely be integrated into SAIC to become a Chinese company, with GM's role reduced to simply providing technology and knowhow."
The proposed Indian joint venture will operate in a similar way, with SAIC expected to finance the 50-50 joint venture while GM supplies its manufacturing infrastructure. GM has two plants in India and sold 65,702 units there last year, ranking fifth in sales. SAIC aims to achieve sales of over 200,000 cars per year in India through the partnership with GM.
SAIC's moves may prove a double-edged sword for GM Daewoo. If GM loses its grip on Shanghai GM, it will likely attach greater importance to its Korean unit to supply its need for a variety of compacts and light passenger vehicles. But if SAIC and GM expand into the global market from their Indian joint venture, it will mean stiffer competition for GM Daewoo.
