General Motors

Industry shake-up may see GM acquire ailing plants in China

PUBLISHED : Thursday, 07 February, 2013, 12:00am
UPDATED : Thursday, 07 February, 2013, 5:16am

The Chinese car industry is overdue for consolidation and General Motors, with local partner SAIC Motor, is interested in acquiring ailing carmakers, according to four people familiar with the companies' thinking.

GM, already the top foreign carmaker in China, aims to increase sales by about 75 per cent by 2015 to five million units, and a deal with another carmaker was one possible way its ventures could expand, said the people, who did not want to be identified because the plans are private.

The government wants to preserve jobs even as it encourages consolidation that echoes the car industry's contraction a century ago that made GM the world's largest for eight decades.

Expanding in China is not as simple as going out and buying another plant. Foreign companies face restrictions on the number of partners they can have or how much of a factory they can own. Last year, China said it would not give incentives for further foreign-owned plants. That started raising the value of underused plants, of which there are plenty: 10 of China's 71 carmakers did not sell a vehicle last year.

"It is much easier to get the government to sign off on their acquisition than to approve new capacity," said Han Weiqi, an analyst with CSC International in Shanghai. "It is in line with the government's mandate of consolidating the industry and reducing the number of players." Two calls to the media office of the National Development and Reform Commission were not answered.

China has the world's most overcapacity. Its factories are able to produce about 10 million more vehicles than they currently make, according to LMC Automotive. That is more than the number made in any country other than China or the United States.

GM and SAIC have plans to open two assembly plants on the mainland next year. Even then, their joint ventures may be capable of making only about four million cars, sport utility vehicles and microvans a year. One way to stay on track with the five million target set when growth is more exuberant will be by taking over assembly plants that are not operating at full production.

GM has built up what it calls a fortress balance sheet with more than US$23 billion in cash that gives it flexibility to make acquisitions.

"There are no current plans to increase GM's manufacturing capacity through acquisition or consolidation," said Dayna Hart, GM's spokeswoman in China.

SAIC declined to comment.

China passed the US in 2009 to become the world's largest vehicle market and still has room to grow. While 627 in 1,000 in the US own a car and 517 in Germany, according to the World Bank, in China, it is only 44.

The recovery of property prices in China had accelerated since early last year, potentially increasing demand for new passenger vehicles, said Kevin Tynan, a Bloomberg analyst.

GM sales in China last month soared 26 per cent from a year earlier to 310,765, its best month ever. GM has been the largest foreign carmaker in China for the past nine years.