GM, China partner take aim at booming India market

An employee checks wipers of the cars at the stockyard of General Motors India Ltd. plant at Halol, about 150 (93 miles) east from the western Indian city of Ahmedabad, August 28, 2009.

SHANGHAI/DETROIT (Reuters) - General Motors and its Chinese partner SAIC Motor are to make small cars and commercial vehicles in India, taking a successful 12-year Chinese partnership into one of the world's fastest growing auto markets.

GM, which is restructuring as it emerges from bankruptcy, will also sell a 1 percent stake in its existing China venture to SAIC for about $85 million, giving China's top carmaker control and allowing it to consolidate the venture's accounts onto its balance sheet.

"We have had a successful relationship with them for 12 years," Nick Reilly, president of GM's international operations, told reporters on a conference call on Friday.

"It seems to us very sensible and a big opportunity to broaden that relationship outside China."

The 50:50 India venture, in which SAIC will invest cash and GM will inject existing Indian assets, aims to sell 225,000 vehicles a year in the next couple of years, Reilly said.

For SAIC, gaining control of the China venture and equal say with GM in India could be a stepping stone to its ambitions of being a global player in an autos market that has suffered one of its deepest downturns in memory.

"India is a test case of SAIC's ambition for overseas expansion, and it may further expand into Southeast Asia when the time is right," said Johnny Wong, auto analyst at Yuanta in Hong Kong.

The GM/SAIC partnership is one of the most successful tie-ups between a foreign and local automaker in China, helping both companies in a fiercely competitive market where they battle with Volkswagen, Toyota Motor Corp and Ford Motor Co, among others.

"It seems to me that SAIC's status in the tie-up is obviously rising," said Qin Xuwen, an analyst with Orient Securities. "The tide has started to turn. They are equal partners now."

GM India said its U.S. parent would collaborate with SAIC to develop and make commercial vehicles and other products both for India and for export, mainly to emerging markets.

"It looks like GM is leveraging all its contacts across the globe to expand in fast-growing markets, and for SAIC it gives them a ready market into the fourth-largest commercial vehicle market," said Ian Fletcher, London-based auto analyst at IHS Globalinsight.

The India collaboration, which should be finalized soon, would have access to mini-commercial vehicles and other products from GM's venture in China, and would vie with local automakers such as Tata Motors and Mahindra & Mahindra.

For years, Chinese automakers have been churning out foreign brands through local tie-ups with Volkswagen, Toyota and others or have focused their own production on basic, cheap models aimed only at the domestic market - now the world's biggest.

Snapping up assets from distressed auto giants offers them a shortcut to global markets and helps them raise both their technical expertise and their profile.

The deals with SAIC come as GM has opted to retain and turn around its European Opel operations in a restructuring estimated to cost about 3.3 billion euros, reversing a decision to sell a controlling stake in the unit.

GM had a cash hoard of nearly $43 billion at end-September thanks to $50 billion of U.S. government support that has made the U.S. Treasury a 61 percent owner, but the company has made it a priority to repay debt to U.S. taxpayers quickly, possibly as early as June.

Earlier this week, GM's CEO Fritz Henderson abruptly resigned after the company's board decided the automaker needed to push its restructuring faster under new leadership.

SAIC President Chen Hong has previously said the company was very interested in entering the Indian market and ranked it second behind China in terms of potential.

There is very little Chinese presence in the Indian auto sector. There are a number of ventures between Chinese and Indian firms making electric two-wheelers, but these are tiny.

Bilateral trade between India and China has grown in recent years but New Delhi, worried about security risks, has taken steps to regulate the entry of Chinese investments and workers.

KEY MARKET

China's auto market has been a bright spot this year amid a steeper-than-expected global downturn, thanks to Beijing's stimulus measures which have significantly bolstered consumer confidence. GM has been one of the biggest beneficiaries.

January-October sales at GM's Shanghai venture with SAIC rose 46.5 percent to 548,707 vehicles. The flagship venture sells passenger cars under the Cadillac, Buick and Chevrolet brands.

In its global restructuring, GM opted to retain Buick due to its popularity in China, while closing or selling other units.

The China results are in contrast to GM's home market, where sales fell 32 percent through November to around 1.9 million vehicles.

Another Chinese car maker, Beijing Automotive Industry Holding Corp (BAIC), signaled it may still be keen to buy GM's Saab unit, obtaining a 20 billion yuan ($2.9 billion) line of credit from Bank of China.

The Beijing-based carmaker was part of a consortium led by Swedish luxury car maker Koenigsegg which last week pulled out of talks to buy Saab.

GM and SAIC have many other joint ventures in China as well, including an automotive finance firm modeled after GMAC and a three-way commercial vehicle tie-up with Lizhou Wuling Automobile. GM's joint ventures in China sold a combined 1.46 million units through the first 10 months of 2009.

($=6.83 yuan)

(Additional reporting by Reuters reporters in DETROIT, HONG KONG and MUMBAI; Writing by Anshuman Daga, Editing by Ian Geoghegan)