GM talking with China's SAIC to raise cash

DETROIT (Reuters) - General Motors Corp GM.N has held talks with China's SAIC Motor Corp 600104.SS about selling part of its stake in their joint venture or other assets as the U.S. automaker races to raise cash, two sources familiar with the discussions said.

A General Motors logo is seen at a car dealership in Toronto December 12, 2008. REUTERS/Mike Cassese

GM approached SAIC Motor in recent weeks with an offer to sell some of its stake in their 50-50 joint venture that builds and markets Buick, Cadillac and Chevrolet models in China, according to the sources.

The sources requested anonymity because they were not authorized to discuss the preliminary talks.

Such a deal would make GM a minority partner at its decade-old flagship venture in China, Shanghai General Motors Ltd, considered to be one of the remaining crown jewels in its global operations.

The discussions with SAIC Motor are taking place as GM pushes to secure big concessions from its bondholders and major union to show it can become viable under a $13.4 billion U.S. government bailout.

GM has until Tuesday to submit a new restructuring plan to the U.S. government detailing the progress it has made in cutting costs and shoring up its balance sheet.

GM and SAIC Motor had no comment.

“It is feasible that GM could cut its stake in Shanghai GM to help raise money,” said analyst John Zeng of IHS Global Insight. “GM could manage to buy back the shares later if it can stave off bankruptcy, as China is one of its few bright spots in the world, if not the only one.”

Shares of both SAIC Motor and FAW Xiali Automobile Co 000927.SZ rose by their 10 percent daily limit. Analysts said GM's need for cash could provide those companies with a good expansion opportunity.

But one analyst said any retreat from its China ventures by GM could also hurt their prospects since the U.S. automaker has provided key technology and marketing expertise.

“It won’t look good for SAIC if its partner is pulling back,” said Guotai Junan Securities analyst Zhang Xin.


Besides their passenger car tie-up, GM and SAIC have seven other joint ventures in China, including an automotive finance company modeled after GMAC and a version of GM’s OnStar navigation service for the Chinese market.

In the early stages of the talks, GM signaled a willingness to consider selling other assets in China to SAIC, according to one of those with knowledge of the discussions.

It was not immediately clear how much GM could look to raise from any deal to sell assets in China.

In July, GM had set a goal of raising up to $4 billion through asset sales, but the global downturn in sales and tight credit have stalled progress on potential deals.

Among the assets GM has been looking to sell are its Hummer SUV line, the Swedish brand Saab and a medium-duty truck business based in Flint, Michigan.

But an agreement to sell some of GM’s assets in China could upstage those deals in size and significance.

Although GM would be surrendering a claim on one of its most promising operations, a move to sell assets in China could also help insulate it against criticism that it was using U.S. taxpayer funds to subsidize business overseas, a second person familiar with the talks said.

In China, GM and its joint ventures in China posted 6 percent sales growth in 2008, down from almost 19 percent the previous year but far outperforming the company’s performance in its slumping home market.

GM’s U.S. sales tumbled 23 percent last year in a downturn that accelerated in the final quarter. Some analysts have suggested that the automaker’s uncertain financial prospects have started to weigh on its sales in China.

GM will update U.S. officials on progress toward clinching a range of pending or potential asset sales when it submits the new restructuring plan next week.

Other aspects of the GM plan are expected to touch on the progress that the automaker has made in cutting jobs and its debt as it battles to lower its break-even point to near the U.S. market’s deeply depressed levels.

U.S. President Barack Obama said on Wednesday that the federal government could offer more aid to GM and its rivals if the automakers can show they have “a plan that works.”

Industrywide U.S. auto sales plunged to a 27-year low in January, leaving GM saddled with a costly surplus of about five assembly plants in North America.

Additional reporting by Yan Fang in SHANGHAI; Editing by Ian Geoghegan and Lisa Von Ahn