US car giant General Motors and its Chinese partner SAIC have set up a joint venture to expand into emerging Asian markets, with India first in line.
AFP - General Motors and Shanghai Automotive Industry Corp will expand their China partnership overseas starting with plans to tap India's burgeoning car market in a move analysts hailed as good for both sides.
The two companies, which dominate China, said Friday they had set up a 50-50 joint venture aimed at expanding in emerging Asian markets with an initial focus on selling small cars and mini-commercial vehicles in India.
GM and SAIC, which already have an established relationship in China, will invest a total 650 million dollars in the Indian venture to exploit the country's "rapidly growing market", GM's executive vice president said.
"It seemed to us a sensible time and a big opportunity to deepen that relationship and broaden that relationship outside of China," Nick Reilly said in a conference call with reporters.
Reilly said GM would contribute about 300-350 million dollars, including existing assets.
In a separate move, GM surrendered its majority holding in the two companies' China joint venture, selling a one percent stake to SAIC for 85 million dollars, Reilly said, giving SAIC a 51 percent share of the operation.
GM is the biggest foreign automaker in China, with expected sales of at least 1.4 million vehicles in the country this year. SAIC is the top Chinese car manufacturer.
China, the world's largest car market, saw vehicle sales soar 37.7 percent in the first 10 months of this year to 10.89 million units, official data shows, compared with a total of 9.4 million units in 2008.
Reilly declined to answer questions on how the moves would affect GM's efforts to restructure following bankruptcy.
The US federal government has a 60 percent stake in GM after helping the car company emerge from a bankruptcy reorganisation in the summer.
Analysts said the move by SAIC would mark a significant overseas expansion by a Chinese manufacturer that would pit the two partners against established Indian carmakers Tata Motors and Maruti Suzuki.
"The foray into India is both a challenge and opportunity," said Liu Feng, an analyst with Southwest Securities.
"It is a challenge because TATA and large carmakers are also experienced in making mini vehicles."
Tata dominates India's commercial vehicle market while Maruti Suzuki is the biggest seller of passenger cars.
Small cars from Shanghai GM, the two companies' main joint venture in China, and mini-commercial vehicles from SAIC-GM-Wuling will be made and sold in India.
John Zeng, a Shanghai-based analyst with IGS Global Insight, said the two companies' mini-commercial vehicles had "considerable cost advantages that both Tata and Suzuki cannot compete with".
"SAIC-GM-Wuling has done so well in cost control that it is a very competitive model in international car markets," Zeng said.
"Compared to Tata’s Nano which had a price of two to three thousand euros, SGMW can offer similar prices but with much better equipment."
Analysts said the Indian market offered both sides an opportunity to tap one of the fastest growing markets in the world.
"The Indian market is an extremely good one because it is an emerging market with a lot of growth potential," said Klaus Paur, North Asia director for market research company TNS.
Liu said the move could help protect SAIC from a possible future slowdown in the growth rates of China's fast-expanding market.
"For SAIC, it is better to walk on two legs as the overseas market will (offset potentially weaker) domestic demand next year and the year after next."
GM has recently been making major efforts to increase sales in India and plans to launch a small car.
Date created : 2009-12-04