Shanghai Auto, GM venture will cart in LCVs first

General Motors Corp and Shanghai Automotive Investment Corporation (SAIC) of China announced a 50:50 joint venture on Friday to explore opportunities in Asia-Pacific markets, beginning with India.

The venture has been incorporated in Hong Kong and GM India will become a subsidiary shortly.

GM’s two manufacturing plants (Halol near Vadodara, Gujarat, with installed capacity of 85,000 units and Talegaon near Pune in Maharashtra with 140,000 units) plus the Chevy brand umbrella will form part of the venture but engineering development — specifically the GM-Reva collaboration for the electric ‘Spark’ — will not come under the new dispensation.

So what does the venture mean for India?

GM India president Karl Slym told DNA Money that to begin with, the Indian operations’ ownership will change. GM Corp affiliates in Australia and Korea (called GM-DAT) are owners of Indian operation, but now they will become part of the venture.

Nick Reilly, president, international operations, GM Corp, told the New York Times GM and SAIC will set up an equally owned investment company based in Hong Kong.

“GM will put in its India assets, and SAIC will be the main provider of the $300 million to $350 million in extra investment for expansion needed to make the overall venture worth $650 million,” Reilly said.

That could mean GM India’s assets (which should include the two manufacturing plants, the Chevy brand of vehicles, dealerships and a separate powertrain plant) have been valued at between $300-350 million.

Slym emphasised the investment by each partner is $50 million in establishing the umbrella venture in Hong Kong and no money is coming to India as on date.

SAIC is a Chinese government-owned company and the venture will launch its first product— light commercial vehicles — by 2011.

An analyst with an international research agency said initial products could be vans from Wuling.

“This product is small and typically runs on an 800 cc engine. If it is launched as a pick-up truck, it will compete with the one tonner Tata Ace but if it is launched as a cargo carrier, competition would come from Maruti Versa/Omni cargo version.”

The analyst said that these vans are available in the petrol version in China but the joint venture could well look to launch diesel also.

SAIC is also expected to bring in low-cost cars and utility vehicles from its home portfolio into India gradually.

Slym said it will bring three things: a much wider range of products, opportunities for exports and sourcing which SAIC’s association and also funds for the Indian operations.
“We are not looking at bringing luxury cars. SAIC’s passenger cars and utility vehicles will follow LCVs”.

Wider export reach through its own and SAIC’s pan Asia network, ability for joint component sourcing and engineering benefits would also accrue to GM India from this deal.