The win-win results:SAIC controls SHGM

Citing an undisclosed source from SOHU that GM transferred 1% stake of Shanghai GM to SAIC has ushered a turning point in the history of the development of Passenger cars in China today. Altering the unequal structure of JVs, its historical influence is far-reaching. Moreover, it also has a good short-term promotion effects.

　　The value of changes in equity

　　1. The change of 1% stake decides domination right of the enterprise

1% stake in joint-stock enterprises is small, but the transformation from 50%: 50% to 51%: 49% in shares means the alteration of domination right foundationally. This is a dream China’s passenger car industry has been pursued from 1980s.

　　2. The Change in equity reflects the good relations of the cooperation

Generally, JVs strongly demand to hold the shares. Under the pattern of 50%: 50%, their superiority in procurement and products will transform to their domination right. Though transferring the 1% stake to SAIC, GM has shown its recognition of the current good cooperation between the two sides.

　　3. The change in equity reflects China’s strength

Presently United States GM is facing the global crisis and its rebirth will be quite bumpy. The resignation of its CEO Handerson recently reflects its internal and external problems. Recently, Han Deshe had serious divergences with the broad on the company’s development strategy, particularly on matters such as dealing with GM’s European brand Opel and the PAG, the second-largest auto dealer of United States acquiring the brand Saturn.

Handerson was once urged to sell Opel. The final result is the GM board of directors decided to retain the brand after the buyer was found. The U.S. government is a major shareholder of the new GM. The primary mission of Whitaker, chairman appointed by the White House is to ensure that the new GM to become profitable again in a short term so that the withdrawal of government investment can be realization as soon as possible. However, performance of Han Deshe can not satisfy the shareholders. Therefore, in new initiatives are rapidly carried out after Handerson’s resignation in December 2nd.

The board, represented by Whitaker, is to open up a new road to faster recovery for GM. The fast development of Chinese passenger car market has rapidly improved the capital strength and international status of SAIC. United States GM has obtained a large amount of equity trading revenues though the transfer of shares, resolving their overall funding crisis in a certain extent.

　　Significance to SAIC

　　1. SAIC’s status further enhanced in the world

With a sales volume of 2.65 million units this year, SAIC will not only become the first domestic automobile group that enter the threshold of 2 million level, but also be expected to become the world’s eighth largest auto group, exceeding Suzuki and Fiat. Under the influence of the financial crisis, this year multinational automotive companies’ generally performances are poor. However, SAIC gets a substantial increase in sales as well as a simultaneous growth in economic benefits. This time by the transfer of shares, both the sales and the right to talk of SAIC are significantly improved, reflecting the status of Chinese enterprises enter into a new stage in the world.

　　2. Shanghai Auto’s convertible bonds can be smoothly transferred to shares

Since the prices of convertible bonds issued by SAIC in 2007 is respectively high, it takes risks to transfer shares currently. This time’s change in equity is profitable for the long-term development of SAIC as well as the revenues come from convertible bonds transferred to shares, which may be hundreds of millions.

　　3. The resources for SAIC to develop its self-owned brand are more abundant

Since now it has the right to control Shanghai GM, the ability of SAIC to coordinate the JV brands and self-owned brands will be stronger, which can not only ensure the business interests of Shanghai GM but also lay a better foundation for the development of its self-owned brands.

　　Significance to GM

　　1. Sell the shares to get money ----a premium of three times

Selling 1% stake to obtain cashes several times higher than the value of the equity itself is quite profitable. Moreover, selling it to Chinese, which are the richest in the world, is also the most cost-effective trading. The consideration of this transaction is 8.450 million U.S. dollars, which can be converted into an overall value of 8.5 billion U.S. dollars. On the other hand, the net assets of Shanghai GM is about 200 billion Yuan, which is less than 30 billion U.S. dollars. Therefore, a triple premium is acceptable to both sides.

　　2. Obtain more profits based on the rapid growth of Wuling

The rapid sales growth of Shanghai-GM-Wuling has contribution a lot in ensuring the status of United States GM in the whole world over the past two years. However, the profits of GM are cut down since its only holds 35% stake. If GM can acquire the shares of Shanghai-GM-Wuling held by Guangxi, its profits will be expanded in the highly developing Chinese market. What is more, since recently Wuling is to promote mid-class sedans, which will be a significant improvement to the present embarrassing situation that its sales performance is better that sales profits, United States GM are never willing to lose this opportunity to win profits. Currently the profits of Wuling are only about 10 million. The amounts can be twice after the mid-class sedans are put into production. As its stakes is expanded and the profits of Wuling is increasing, in the future the benefits of United States GM can be enlarged significantly, which will be a great contribution its head office.

　　3. United States GM will size the chance to explore Indian market

GM has transferred nearly half of its stakes of its own business in India to Chinese partner SAIC, which seems will weaken its control in the new markets but actually can get SAIC to increase its investments in Indian market, forming a jointly strength.

United States GM and SAIC jointly develop the technology, culture, capital, parts and components of the Indian market, which can achieve a better performance.

　　Significance to Shanghai GM

　　1. Shanghai GM has achieved a second take-off in 2009

In 2009 Shanghai GM has got a significant change that its product structure is overall adjusted, becoming a passenger car manufacturer that has the most abundant brands and models as well as the most precise positioning.

The two pillars of Shanghai GM are Chevrolet and Buick, which are respectively targeted at the low-class and high-class market. Recently Chevrolet has launched new Chevrolet Aveo, new Lova and Ke Luzi. Besides, the new generation of Sail will be officially released in January next year. On the other side, Buick has introduced new Regal, new LaCrosse and Excelle XT. The new generation products of Excelle will be available in the market next year.

Particularly, the transformation from business model to fashionable sport model of old Regal, the escalation of LaCrosse and the introduction of Buick Excelle will definitely bring great profits to SAIC and GM.

　　2. The status of Shanghai GM as NO. 1 among passenger car companies in China will be fatherly secured

According to sales statistics of the National Federation of the passenger car manufacturers, the sales volume of Shanghai GM in the second half have been increased continuously. Shanghai GM surpassed Shanghai Volkswagen, becoming the king of passenger car manufacturers during recent months. With the establishment of the dominant position of SAIC, its capabilities to adjust products and control costs are fatherly enhanced. Through not selling Opel, GM also has provided strong product and technical support for the continued development of SAIC.

　　Significance to China

　　1. The world financial crisis is an opportunity for China to go out into the world

The ambition of Chinese auto industry to go out into the world always encounters certain foreign obstacles. By strength and financial capitals, together with GM, this time China is to explore the world’s most populous Indian market in the future. This is a good opportunity and the best choice for China to go out into the world under the world financial crisis.

　　2. The overseas mergers and acquisitions of SAIC complies with our national strategies

As one of the world’s top 500 enterprises and China’s largest group which is now rapidly expanding, SAIC is expected to be the first company to go out into the world according to our national strategies.

Earlier, the acquisition of Ssangyong had met some problems, this time the road to the outside in front of SAIC is broader. Moreover, the market is vaster. This is exactly what we are looking forward to.(Translator: Yalong/ Jessie)

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