Chinese carmaker to buy stake in GM's local unit

Oct 16, 2009 (The Economic Times - McClatchy-Tribune Information Services via COMTEX) -- SAIUF | Quote | Chart | News | PowerRating -- Shanghai Automotive Industry Corporation (SAIC) is close to picking up a stake in General Motors India to form an alliance that will give China's largest carmaker by volumes a foothold in the second-fastest growing car market in the world.

The alliance will cover sourcing of components from China and assembling of SAIC's light trucks at GM India's Talegaon factory, said a person with direct knowledge of the development. SAIC, one of GM's largest partners in China, is eager to establish a presence in India and is leveraging its equation with GM to form an alliance, he said, requesting anonymity. He, however, refused to divulge financial details of the transaction and the quantum of stake that will change hands.

An alliance will help GM India -- a wholly-owned subsidiary of GM, the world's second-largest carmaker -- source components from China to save costs. It will also help the company foray into India's lucrative light trucks market. GM India sells a range of small cars such as the Aveo-Uva and Spark in India as well as sedans such as the Aveo, Optra and Cruze under the Chevrolet brand.

The deal is closely linked to GM's decision to buy a 16 percent stake in the three-way mini-van joint venture SAIC-GM-Wuling Automobile from Chinese firm Liuzhou Wuling Motors. GM currently holds a 34 percent stake in the JV and hopes to raise its holding to 49 percent. SAIC owns 50 percent stake in the company.

P Balendran, the spokesman for GM India, said his firm has ongoing collaborations with Chinese firms such as SAIC, SGM and Wuling. "We keep on pursuing and evaluating opportunities with our partners across the globe to leverage each other's strengths in technology and product introductions. This also gives us an opportunity to widen our product portfolio in the countries we operate and meet the requirements of the local market," he said.

GM's India-China connect is getting stronger as the Detroit-based carmaker's top executives think the two markets complement each other. Recently GM CEO Fritz Henderson said exports from China, if any, would more likely go to emerging markets.

Analysts said an alliance between the firms will result in the entry of Chinese vehicles into Indian market. "Given GM's footprint and presence in Asia, India is an obvious destination," said a partner with a Delhi-based MNC auto consultancy firm.

A GM India executive said that as part of its plans to introduce light trucks in India, it is in talks with SAIC-GM-Wuling, which is the largest manufacturer of mini vans in China. Tata Motor's Ace is the market leader in the light trucks segment. It is already facing competition from products from Piaggio and M&M. "The market is big enough for everyone to grow. LCV segment has been consistently clocking double-digit growth," said another Delhi-based analyst.

"Though the cost difference between India and China may not be huge, it will help GM India save costs substantially. And it may pass on a part of the savings to customers," he said.

GM India remains largely unaffected by the parent's financial problems. The Indian arm of the troubled US carmaker is set to roll out its third small car for India, based on the Beat concept, later this year. GMI sold 7,654 cars in September, the highest ever for a month by the company.

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