Why did General Motors sell controlling interest of GM China to SAIC?

In an International Herald Tribune article, dated December 16, 2009, Edward E. Whitacre Jr., CEO of General Motors, was quoted as saying about Opel,

“The board’s mentality was, here’s something we own, it has a lot of worth to it, and why would we walk away from this for very little money and be in a joint venture where we were a minority owner?”

Whitacre was talking about Opel, but why wasn’t he talking about GM-China? Why did General Motors sell controlling interest of GM China to SAIC?

According to sources, GM sold controlling interest in it’s 50/50 joint venture with SAIC. GM also sold 50% of it’s Indian operations to SAIC as part of the deal. GM will reserve the right to repurchase the controlling interests, when and if it’s finances improve.

There is a big difference between 51% and 50%, and it’s much more than just a matter of an extra percentage. If at the end of September, 2009 General Motors said they had $43 billion. According to different sites on the internet General Motors got paid $85 million to give up controlling interest.

GM and SAIC have several other joint ventures in China.  Lizhou Wuling Automobile is the number one selling vehicle in China, and both GM and SAIC have ownership interest in that company.  GM and SAIC have an interest in an automotive finance company.

On emptywheel website Michael Dunne said,

“Michael Dunne, an auto consultant specializing in Asian markets, said that for G.M. to accept a minority holding in it’s main joint venture marked an inevitable decline in G.M.s influence in China, which has overtaken the United States as the worlds largest auto market.

“Dropping below the 50-50 partnership is huge ” there may be a way to preserve voting rights, but symbolically, it is a step down,” Mr. Dunne said.

G.M. is separately putting it’s Indian operations into a new joint venture with S.A.I.C., effectively selling about half of the operations to S.A.I.C. as well.”

Why would General Motors give up controlling interest?People are speculating that the reason General Motors sold controlling interest was because GM Daewoo made a bad bet with the Korean Won on derivatives. Supposedly, GM couldn’t use tax dollar money to rescue them, so they had to sell controlling interest of GM China. General Motors denies this, but won’t say why they would sell controlling interest.

Who benefit’s from this transaction the most?

Listen to the John Batchelor radio show talking about Saab, Opel and GM-China, and John Batchelor and Charlie Gasparino, CNBC, talking about GM-China:

About the Author:

Lou Ann Hammond is the CEO of Carlist and Driving the Nation. She is the co-host of Real Wheels Washington Post carchat every Friday morning and is the Automotive, energy correspondent for The John Batchelor Show and a Contributor to Automotive Electronics magazine headquartered in Korea. Hammond is a member of the North American Car and Truck of the Year (NACTOY), Women's World Car of the Year (WWCOTY), and the Concept Car of the Year.