GM to take on SAIC as partner in India3 min read . Updated: 04 Dec 2009, 12:45 AM IST
GM to take on SAIC as partner in India
GM to take on SAIC as partner in India
Shanghai: China’s largest auto maker, SAIC Motor Corp. Ltd, is close to an agreement to cooperate with General Motors Corp. (GM) on manufacturing and selling vehicles in India, two people familiar with the talks said.
The companies are setting up a 50:50 joint venture (JV) that will take over GM’s Indian assets, a person familiar with the plan said, asking not to be identified because the plans are private. GM will make an announcement on Friday about the two car makers’ cooperation in the country, another person said.
GM’s Indian unit said it had no knowledge of such a move.
“I am not aware of any such development," P. Balendran, vice-president of GM India, told over phone.
Karl Slym, president and managing director of GM India, was not reachable on the phone for comments.
GM India has manufacturing facilities at Halol near Gujarat and Talegaon near Pune. It sells the Tavera, Aveo, Spark, Aveo U-VA, Optra Cruz and Captiva models under the Chevrolet badge in India and will be launching the Beat in January next year in the premium compact segment.
The India venture, to be set up in Hong Kong, will also make and sell minivans, mini-trucks and small cars to tap demand for low-cost vehicles, one person said. GM and SAIC have been in talks about introducing light commercial vehicles in India, where economic growth is spurring demand for small trucks, Slym had said in September.
SAIC spokeswoman Zhu Xiangjun declined to comment. Calls to Johan Willems, a Shanghai-based GM spokesman, weren’t answered.
GM will also sell a 1% stake in its Chinese passenger car venture to SAIC for $84.5 million (Rs390 crore) in response to an accounting rule change, one person said. Detroit-based GM and Shanghai-based SAIC now own 50% each of the China venture. Shanghai General Motors Co. Ltd’s Friday announcement about the India venture may include the stake sale, another person said.
The stake sale is in response to Chinese accounting-rule changes that will prevent companies from including in their earnings any profit from ventures in which they have a minority holding, one person said.
The sale was approved by GM’s board this week, and SAIC’s board will consider the transaction on Friday, the person said.
Shares of SAIC, China’s largest domestic auto maker, were halted in Shanghai trading on Thursday after the company said on Wednesday it plans to restructure its assets.
GM and SAIC are targeting annual sales of 300,000 vehicles in India in five years, a person said. GM sold 65,702 units in India last year and aims to sell 75,000 vehicles this year, the company had said on 24 September.
On 3 November, Bloomberg had cited SAIC as saying that it expects to reach an agreement on cooperation with GM in India by the year-end as it seeks to boost sales overseas.
“Talks are still going on," chairman Hu Maoyuan had said in Beijing, adding that the company would arrive at a decision by the year-end. GM and SAIC are discussing introducing Wuling vehicles in India as economic growth spurs demand for inexpensive vehicles, it had said at the time.
Experts believe the JV will be a win-win for both.
“GM India needs deep pockets to be able to launch more products and compete with the likes of Maruti Suzuki India Ltd and Hyundai Motor India Ltd," said Abdul Majeed, partner at audit and consulting firm PricewaterhouseCoopers. He believes a JV will provide financial muscle, while SAIC will get access to GM’s technology and its knowledge of the Indian market.
SAIC will also be able to leverage GM’s distribution if it decides to launch products for the Indian market, Majeed said. Given the rapid growth expected in both India and China, such partnerships will play an important role for a company such as SAIC, which has global ambitions.
Alliances, he said, will be key in future because of the uncertainties regarding changing customer preferences, and cost-sharing will top the agenda at most firms.
V.G. Ramakrishnan, senior director for automotive and transportation sector at consultancy Frost and Sullivan, believes the venture may result in SAIC bringing some low-cost products to India. However, he is sceptical about the success of such products given the reputation of China-made products in India. “For a consumer, perception is reality," he said.
Mint’s Shally Seth in Mumbai contributed to this story.