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General Motors gears up for new China-India link

31 Oct 09 11:33 AM
Money Control
General Motors is putting in place a growth strategy for the Asia-Pacific region which will see huge synergies between its Chinese and Indian operations.
In the process, its ally in China, SAIC Motor Corporation, will get a comfortable foothold in India, which could only get stronger in the coming years.
According to top sources, the deal being worked out will see the Shanghai-based automaker pick up to 50% in GM India. “An announcement could even be made as early as next week,” top industry sources told Business Line.
Once this happens, SAIC will produce the Wuling series mini-trucks in GM India’s new Talegaon plant near Pune, which will then take on competing products from Tata Motors, Mahindra & Mahindra and Piaggio Vehicles. The Indian companies could be in for a tough fight since the Chinese are no pushovers, especially in the costing department.
GM has a three-way joint venture in China with SAIC and Wuling Auto, which manufactures these mini-trucks and buses. Here, SAIC holds 50.1%, GM 34% and Wuling the balance 15.9%. GM is now keen on acquiring Wuling’s equity component, which will increase its overall stake to nearly 50 per cent.
Analysts believe that it is this move that has triggered a quid pro quo. “There is every possibility that, in return for this stake, SAIC would have sought GM’s help in paving the way for a presence of Wuling trucks in India,” they said.
SAIC-GM-Wuling have already kicked off exports of the Wuling N200 and N300 series to South America, West Asia and North Africa under the Chevrolet brand. “India is an attractive market for small trucks and was the logical choice,” sources said.
From GM’s point of view, the move to offer SAIC a stake in its Indian arm makes perfect sense. In the first place, the sale could translate into a considerable consideration.
Secondly, the new joint venture will keep costs in check because of large use of inexpensive Chinese parts in vehicles. Lastly, it could help GM increase market share here since “two heads are better than one.”
For SAIC, this is the quickest way to enter India because the routine process of setting up a new plant could have taken a year or more.
In addition, Talegaon is a full-fledged plant with infrastructure in place. It now remains to be seen how key functions such as marketing, finance, production and so on are split between GM and SAIC in India.
Sources say that the Chinese company will have a “major say” in sourcing, not only for the Wuling series but future products such as its Roewe passenger car range which will need inexpensive parts in a competitive market like India.
It is also a moot point if SAIC will increase its stake in the new joint venture at a later stage to become a majority shareholder.