SAIC dilutes India stake
October 31, 2012

Three years in, Shanghai Automotive Industry Corporation (SAIC) has exited from their investment into General Motors India in an all equity deal after the 50:50 joint venture proved unprofitable for the Shanghai auto major. SAIC announced that it had diluted its holding in the venture by 43 percent to its current investment of 7 percent. SAIC had entered into the venture in late 2009, for Rs 2,350 crore as part of it efforts to revive the company and to aid GM’s business in emerging markets. Then, India the next big China had seemed a highly lucrative move.

An A listed company on the Shanghai Stock Exchange, SAIC explained its reduced stake in GM India was due to the partnership unlikely showing a profit in the near term and because the cars made are not under its own brand name.Another view though it’s that SAIC had earlier invested in GM India, to add financial strength behind GM’s expansion, now that GM has made back significant investments, they bought out SAIC.

The joint venture had also given SAIC equivalent members on the board of GM India, Chinese managers will now no longer get that privilege, leaving GM to make decisions in India.  After buying back SAIC’s share, GM will have a 93 percent stake in the operation and “is however confident in India based on the long-term growth prospects in the market”. Together, the two partners have invested US$1 billion in the country. The money was invested in General Motors’ second plant in Talegaon to roll out light commercial vehicles and cars from SAIC’s portfolio.

According to the agreement, economy cars from Shanghai GM and minivans from SAIC-GM-Wuling, SAIC and GM’s manufacturing joint ventures in China would be produced and sold in India under GM’s brands. This agreement still stands solid. The New Sail developed by Shanghai GM was produced at the India joint venture as the first product in the joint venture. The Enjoy passenger van developed at Shanghai GM Wuling will be built in India by the end of this year.

SAIC’s exit marks one of the first few disappointments Chinese companies have faced in India. Riddled with red tapism and bureaucracy, over a long period of time, Chinese companies in both the telecom and infrastructure sectors have always careered a successful course in India. Bullish on the market, Chinese investments have profiteered where others have met with a red ocean of competition. Unfortunately this time, one of the largest players in the largest automobile market worldwide exited with nil profits.

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