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

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.